R. v. Spryfield Bingo & Amusement Centre Ltd., [1998] 1 CTC 158

Williston J.P.C.:

Spryfield Bingo and Amusement Centre Ltd. (now known as Centre Bingo Ltd.) is charged in an information with four counts of income tax evasion and four counts of making false or deceptive statements in income tax returns by failing to report income in the years 1983 to 1986, contrary to section 239(1 )(d) and 239(1 )(a) respectively of the Income Tax Act.

I first wish to thank and commend both Crown and Defence counsel for their very methodical and professional conduct of this case.

The evidence presented was fairly lengthy with respect to the testimony heard, as well as documents and written representations filed. Over 8,000 exhibits were submitted in evidence. No issue was taken by counsel regarding continuity of possession of these exhibits nor with the notice requirements pursuant to The Canada Evidence Act.

The criminal offence of tax evasion is set out in s. 239 of the Income Tax Act, R.S.C. 1970-71-72, c. 63, as amended.

At all material times, the essential elements of section 239(1) of the Income Tax Act provided as follows:

Every person who has

(a) made ... false or deceptive statements in a return ... filed ... as required by or under this Act ... [or]

(d) wilfully, in any manner, evaded ... payment of taxes imposed by this Act, ... is guilty of an offence...

The Crown proceeded by way of summary conviction.

The provisions of the Income Tax Act which refer to persons apply equally to corporations. The Interpretation Act, R.S.C. 1985, c.1-21, as amended states:

35(1) In every enactment,

‘person’ or any word or expression descriptive of a person, includes a corporation...

Mens Rea

There is no question that in prosecutions involving sections 239(1 )(a) and (d) of the Income Tax Act mens rea applies to the charges before the court; to establish the charges against the accused, mens rea must be proven. (R. v. Hefler (1980), 42 N.S.R. (2d) 276 (N.S. Co. Ct.), O’ Hearn, J.) Mens rea has been defined by Dickson, J. in the Supreme Court of Canada case of R. v. Sault Ste. Marie (City) (1978), 3 C.R. (3d) 30 (S.C.C.) at page 40:

The distinction between the true criminal offence and the public welfare offence is one of prime importance. Where the offence is criminal, the Crown must establish a mental element; namely, that the accused who committed the prohibited act do so intentionally or recklessly, with knowledge of the facts constituting the offence, or with wilful blindness toward them. Mere negligence is excluded from the concept of the mental element required for conviction. Within the content of the criminal prosecution a person who fails to make such inquiries as a reasonable and prudent person would make, or who fails to know facts he should have known is innocent in the eyes of the law.

The averments in the four counts under section 239(1 )(a) of the Income Tax Act and the language of that section clearly indicate that the Crown is required to prove beyond a reasonable doubt the making of false or deceptive statements in an income tax return with intent that they be acted on as being true.

In R. v. Hefler, supra, O’ Hearn, J. stated at p. 288:

Under s. 239(1 )(a) the prosecution must prove that the defendant made the statement knowing it to be false or deceptive, with intent that it is acted on as true...

With respect to the four counts laid under s. 239(1 )(d) of the Income Tax Act, the prosecution must prove beyond a reasonable doubt that the accused “wilfully ... evaded or attempted to evade payment of taxes imposed by the

Act...”.

In R. v. Hefler, supra, O’Hearn, J. stated pp. 288-290:

The mental element under s. 239(1 )(d) is more debatable and debated...

In evading or attempting to evade the payment of taxes the defendant must do so ‘wilfully’...

the conduct of the defendant, which may be otherwise blameless in criminal law must be a product of an intent to evade tax that the defendant knows or believes to be payable (knowledge here, including ‘wilful blindness’). Such an intent has been characterized ... as ‘deceitful’, ‘fraudulent’, ‘evil’ or ‘corrupt’.

In Glanville Williams text Criminal Law, 2nd Edition, the doctrine of wilful blindness is discussed. The author states at p. 156:

the issue of Knowledge may arise under a statute either because it is expressly required or because the necessity for it is implied by the use of some other word such as ‘wilful’ or ‘false’.

Williams defines knowledge as meaning either personal knowledge or imputed knowledge. The rule is stated as being that, if a party has his suspicion aroused but then deliberately omits to make further inquiries because he wishes to remain in ignorance, he is deemed to have knowledge. At pp. 158-159 he states:

Before the doctrine of wilful blindness applies, there must be realization that the fact in question is probable, or at least, ‘possible above the average’. ... There must have been something actually put to the accused on inquiry. ... Recklessness and ‘not caring’ are not quite the same thing as wilful blindness; such words express the latter doctrine rather too widely. Similarly, suspicion is not sufficient if the defendant could not make up his mind positively; although it will be wilful blindness if, having the suspicion, he failed to make further inquiries because he wished to enrich himself even at the risk of participating in the fruits of crime ... a court can properly find wilful blindness only where it can almost be said that the defendant actually knew. He suspected the fact; he realized its probability; but he refrained from obtaining the final confirmation because he wanted in the event to be able to deny knowledge. ... It requires in effect a finding that the defendant intended to cheat the administration of justice.

This is frequently expressed by saying that he shut his eyes to the fact, or that he was wilfully blind. Lord Hewart, C.J. in Evans v. Dell, [1937] 1 All E.R. 349 (Eng. K.B.) expressed it by saying:

the respondent deliberately refrained from making inquiries the result of which he might not care to have.

Also helpful in this regard is the decision of R. v. Morris, [1973] C.T.C. 629 (Ont. Prov. Ct.). The accused was charged with a number of offences arising from a substantial understatement of income as reported in his income tax returns. The Court found that, in light of the evidence of the Crown, there was sufficient evidence to give rise to the guilty intent unless it was explained away by the Defendant. Here the defendant was able to explain his evidence by stating that he was not an accountant; the Court considered him to be an honest man and as such he was not avoiding taxes or deliberately filing false returns but simply did not know what he was doing. The Court stated the following as to the inference to be drawn from the facts at p.632

It is also clear from the evidence, and from the authorities, that there is evidence on which I could very well come to the conclusion that there was mens rea, a guilty intent, because this was not something that happened in one year but was something that happened over five successive years.

Certainly from the evidence presented by the Crown, I believe that the Defence was put in the position where evidence had to be presented to explain, if possible, the reasons why the methods that were used were used, and to explain away, if one can put it that way, the mens rea which could very easily be found in the Crown’s evidence.

The case of R. v. Kidd (1974), 74 D.T.C. 6574 (Ont. H.C.) was a stated case from a conviction under s. 239(1 )(d) of the Income Tax Act. Lacourciere, J. stated at p. 6575 as to the element of deceit:

The appellant contended that, since accurate records were kept including all of the invoices for his professional work, without any attempt at destruction or falsification, and because of his knowledge of regular audits every four years, he could not be found guilty of evasion, which involves an element of deceit. Clearly if the accused had simply failed to file tax returns, he could have successfully defended a charge of evasion... But here he filed a return containing false and incomplete information. The appeal was argued on the basis that this was not an inadvertent or innocent omission: it seems clear from the form of the question that, in the view of the Judge below, it was a ‘deliberate failure to include income’... The learned Provincial Judge obviously made the inference that the accused intended to deceive the department in the preparation of its assessment...

The fact that the accused might have been convicted on an offence under s. 239(1 )(a) ... is not a defence: subsection (d) is obviously broader than the three immediately preceding subsections, and can encompass a wilful evasion in any manner, including the suppression of income in a return ... In other words evasion is not limited to suppression of income by false declaration, or falsification of books, or failure to record. The manner in which the offence is committed can only be relevant to the question of sentence.

Actus Reus

In À. v. Frank (1945), 84 C.C.C. 94 (P.E.L S.C.) Campbell, C.J. held that even before a court addresses the issue of whether or not the Crown has proven the mens rea in the accused, it must first determine whether the accused in fact suppressed income as defined in the Income Tax Act. (See also R. v. Ciglen, [1970] 4 C.C.C. 83 (S.C.C.))

As well, in À. v. Redpath Industries Ltd. (1984), 84 D.T.C. 6349 (Que. S. C.), Beigeron, J. held at p. 6351:

In a tax evasion charge it must appear prima facie from the evidence that the taxability is clear-cut, obvious, indisputable, unquestionable from lack of reporting, before entering the examination of the other facts of the charge, e.g. whether the indisputable taxability, based on income gained, proven and un- declared, leads to a conclusion beyond a reasonable doubt that it was wilfully omitted by a taxpayer in his tax returns.

It must also be kept in mind that the amounts specified in the information are, in general, only a particular and the Crown need not prove those specific amounts: R. v. Hefler (1980), 42 N.S.R. (2d) 276 (N.S. Co. Ct.), at 291, R. v. Century 21 Ramos Realty Inc. (1987), 32 C.C.C. (3d) 353 (Ont. C.A.), at 369 , R. v. Giguere (1983), 8 C.C.C. (3d) 1 (S.C.C.) at 14-15.

Burden of Proof

This case must be decided on the evidence as it exists. The Court must consider the totality of the credible evidence: R. v. Morin (1988), 44 C.C.C. (3d) 193 (S.C.C.)

This is not a civil tax assessment case. These are serious charges. The distinctive nature of the separate proceedings must be appreciated. In the civil reassessment proceeding the Crown need only prove on “a balance of probabilities” that the accused had unreported income during the years under review.

As this is a quasi-criminal prosecution, the onus is on the Crown to prove its case beyond a reasonable doubt and any reasonable doubt must be resolved in favour of the accused.

Admission of Facts

Although there are substantial differences between the respective positions taken and argued by the Crown and the Defence, an admission of facts was filed at the beginning of this proceeding by agreement between the Crown and the accused. The agreement includes a summary of the evidence of Eugene Carew and Robert Boudreau, both investigators with Revenue Canada. The agreement includes the following material facts:

1. Jamil Karam owned 98% of the shares of J.Y.K. Holdings Limited, a company duly incorporated under the laws of the Province of Nova Scotia which, in turn after February 11th, 1985, owned 100% of the shares of Spryfield Bingo and Amusement Centre Limited hereinafter referred to as Spryfield Bingo.

From 1983 to 1985 Don Valardo owned 49% of Spryfield Bingo, Dawn Valardo owned 1%, J.Y.K. Holdings Limited owned 49% and Dalal Karam owned 1% of said company.

2. During the period under review J.Y.K. Holdings Limited hereinafter referred to as J.Y.K., provided management and bookkeeping services for Spryfield Bingo.

3. Spryfield Bingo leases their bingo hall from the owners of the Spryfield Mall, and operates as Spryfield Bingo.

4. During the period under review, the Canadian International Trading Corporation Limited duly incorporated in the Province of Nova Scotia hereinafter referred to as C.I.C. provided all the bingo supplies to Spryfield Bingo and that J.Y.K. owns 100% of C.I.C. during the period under review.

5. Jamil Karam, hereinafter referred to as Jamil, was President of J.Y.K. beginning on February 11, 1982 and was President of Spryfield Bingo from February 11, 1985 though he held himself out to be President as of the 1984 fiscal year.

6. The Nova Scotia Lottery Commission issued 2 types of bingo licenses: commercial and charitable:

(a) commercial licenses were issued to individuals or corporations who were responsible for operating the bingo in accordance with the policy of the Commission and who retained any profit resulting therefrom. Prizes paid out were restricted to $100.00 per game. The bingo operator such as Spryfield Bingo was to remit a lottery tax to the Nova Scotia Lottery Commission which was calculated as 10% of the amount paid Out as prizes.

(b) charitable licenses were issued to charities who were responsible for operating the bingo in accordance with the policy of the Commission and who retained any profit resulting therefrom. In the case of charities, they had a daily prize limit of $15,000.00. Their lottery tax was based on 2% of the amount paid as prizes.

7. Spryfield Bingo operates as a commercial bingo each day of the week except Sunday when the bingo ran during the period under review as a charity. The Metropolitan Lebanese Association after January, 1982 known as the Lebanese Association of Nova Scotia sponsored bingo in August 1981 at Spryfield Bingo. The Sunday night

bingo operated in the same manner as the other nights of the week: controls were the same and the employees were the same. The only difference was in the sale price of the evening bingo books and in the prize structure which was increased on that night. The commercial bingo charged $3.00 for each bingo book sold during the week and $2.00 for each book sold during afternoon bingo except for Sunday night bingo when books sold at $5.00. Sunday bingo books were a different color than the other daily bingo books.

8. The Lebanese Association of Nova Scotia was provided with cash or cheques on behalf of Spryfield Bingo during the period under review to cover the charity share of the profit and the lottery tax owed to the Nova Scotia Lottery Commission. It was the responsibility of the charity to file the monthly lottery reports and to forward 2% of the prizes owing to the Nova Scotia Lottery Commission.

9. Exhibits 9 to 12 inclusive, are the filed income tax returns of Spryfield Bingo, the accused at this trial.

10. Exhibits 26-29 inclusive, are the books of original entry of Spryfield Bingo for the years 1984, 1985, 1986 and 1987, respectively.

11. Exhibits 832-845 inclusive, are the Monthly Lottery Reports for the Lebanese Association of Nova Scotia for the period April 1986 to April 1987 regarding Spryfield Bingo.

12. Exhibits 1509-1785 inclusive are the Purchase Invoices from C.I.C. for the years 1983 to 1987, inclusive, regarding Spryfield Bingo.

13. Exhibits 46-49 inclusive, are the tax calculations prepared by Revenue Canada for alleged tax sought to be evaded by Spryfield Bingo for the fiscal years 1984 to 1987, inclusive.

14. Exhibits 103-106, inclusive, are the analyses of all purchase invoices for Spryfield Bingo prepared by Revenue Canada for the fiscal years 1984 to 1987, inclusive.

15. Exhibits 5757 to 5804, 832 to 844 and 5917 to 5940, inclusive, are the Monthly Lottery Reports for the commercial bingo operated by Spryfield Bingo and the charitable bingos sponsored by the Lebanese Association for Nova Scotia for the period under review.

16. Mr. Earl Wilkinson, an employee of Spryfield Bingo from 1982 to March 1988 was generally responsible for the afternoon bingo, mini bingo, the midnight bingo and the extra nightly specials played at Spryfîeld Bingo. The afternoon bingo were played on Saturdays all during the year 1983. The afternoon bingos were expanded in 1984 to 6 days a week and in 1985 they expanded to 7 days a week with Sunday afternoon bingo at all times being operated on behalf of the Lebanese Association of Nova Scotia.

17. Mr. Wilkinson’s duties included:

(a) ordering and receiving bingo supplies from C.I.C.;

(b) supervising the sales of bingo cards;

(c) supervising the employees and the general operation of the bingo;

(d) preparing cash reports; reconciling bingo cards issued to cash on hand from each bingo; which was completed immediately after the end of the particular bingo session in question;

and

(e) to take inventory of the stock cupboard.

18. The main bingo games were played from a book which usually contained 15 pages of disposable paper. Each page was used to play a separate game. Therefore, a 15 page book enabled a player to play 15 games. Each page contained two or three faces depending on the type of book used. A two faced book gave a player 2 chances to play the same game while a three faced book gave a player 3 chances to play the same game.

19. In addition to the 15 games in the bingo books, there were additional games called specials. These were usually played on individual sheets of paper and were played at various times during the night. These sheets were similar to the individual pages in the bingo book and were marked and disposed of in the same manner. According to the approved bingo format for games issued by Spryfîeld Bingo there were anywhere from 5 to 8 games played during a particular session. These individual sheets came in various types with solid or bordered colours and a particular special usually used the same type and colours on a consistent basis. The types of cards used during the bingo were as follows:

i) 2 on: this card contained 2 faces which gave the player two chances to play the same game

ii) 3 on: this card contained 3 faces which gave the player 3 chances to play the same game

iii) triple win: another name for a 3 on card

iv) 6 on: this card contained 6 faces which gave the player 6 chances to play the same game.

20. After the regular bingo games, special games and the bonanza game, there was a midnight session. This was played after the regular session had been completed and the majority of people had left. These games were played on disposable cards or books in a similar fashion to the special games referred to above.

27. The cards and books were ordered by the set or the case. There were 3 sets to a case in a 6000 series. In a 9000 series there were 2 sets to a case.

22. The 9000 series means 9000 individual faces or cards. A set of 9000 series comes as follows:

a) I on = 9000 sheets

b) 2 on = 4500 sheets

c) 3 on = 3000 sheets

d) 6 on = 1500 sheets

The 6000 series means 6000 individual cards or faces. The 6000 series comes as follows:

a) 7 on = 6000 sheets

b) 2 on = 3000 sheets

c) 3 on = 2000 sheets

d) 6 on = 1000 sheets

All bingo supplies were ordered from C.I.C.. From 1983 to May 1985, the bingo supplies were ordered by phone or Earl Wilkinson would attend the C.I.C. warehouse to place his order. After 1986, supplies were ordered on a preprinted form similar to exhibits 5941 and 5942. The cards were supposed to be put in the stock cupboard and used on a daily basis under Mr. Wilkinson’s control. Occasionally C.I.C. would not have the required supplies in stock; so substitutions were made. Occasionally, the substitutions were re colour or type of card; in the latter case another type of card would be cut to conform to the original request.

25. At the beginning of each bingo session, cards and books were sold to the players as they came through the door. A record was set up to keep track of the number of each type of card or books sold. As the first game of bingo was played, the manager counted the remaining cards and subtracted the amount from the amount first set out for sale. The difference equalled the number of cards and books sold at the door. A mathematical calculation determined the value of the number of cards or books sold which was reconciled to the actual cash generated from the door sales. After this reconciliation was completed, cards representing the various specials and the Bonanza game were given to the floor workers for additional sales during the bingo session. A record was kept of the number of cards given to the floor workers generally 100, 50 or 25. As the special games were played, the floor workers were supposed to return their excess cards and the cash from the sale of the cards. The manager would subtract the number of cards returned from the number of cards issued and compare the resulting figure to the unused cards turned in by the floor worker and any shortages were minimal and the floor workers were supposed to make up the difference.

26. A cash report was usually prepared for each type of bingo sessions except for mini bingo, as follows:

a) the cash report was supposed to contain the gross revenue and the prizes paid for each game played;

b) the attendance was listed for each session of bingo;

c) the cards sold were reconciled to the cash on hand;

d) the cash reports and cash were wrapped together and placed in the safe at Spryfield Bingo to be picked up or delivered to Twin City - Wyse Road, Dartmouth, Nova Scotia.

27. At no time did Earl Wilkinson maintain a perpetual inventory system at Spryfield Bingo.

28. From 1983 to April 1986, inclusive, Earl Wilkinson would normally deliver the cash reports and the cash each Thursday to Khalil (Karl) Abou-Dib, hereinafter referred to as Karl at T.C.A. where he was employed and the cash was reconciled to the cash reports at J.Y.K.

29. After April 1986, Earl Wilkinson brought the cash reports and cash to the downstairs office of J.Y.K. in the Concorde Inn, Dartmouth, Nova Scotia, and gave them to Rosealie Jackson or Debbie Tanner.

30. During the period of 1984 to 1986, inclusive, attendance at the nightly bingo session, proceeds from mini bingo and book sales were reported to Jamil by telephone.

31. From 1987 on the number of people in attendance, proceeds from mini bingo and book sales would be supplied to Jamil by use of a digital pager.

32. The same format, prize structure and the cost of the bingo cards for the years under review at Spryfield Bingo are set out in the game formats which are in evidence as exhibits.

33. The charitable bingos started at Spryfield Bingo in 1981 one day per week on Sunday.

34. Ricky Boutilier worked at Jamil’s office until 1985. One of his duties was to check the nightly cash reports from each bingo hall. The procedure for this was done weekly on what they called deposit day and was as follows:

a) Ricky Boutilier and Karl would take the 7 day previous cash reports from the various bingo halls into a board room which was located on the main floor of the Concorde inn;

b) Ricky Boutilier and Karl would check the nightly cash reports to the cash attached to them;

c) They then gave the daily cash reports to Jamil who would record the details in a book;

d) Jamil would provide these details on a weekly or monthly basis to Mrs. Jackson

35. Prior to 1985 when Ricky Boutilier and Karl finished with these cash reports they would be shredded by Ricky Boutilier or Karl or another employee after Jamil had read them and entered financial information into his record book. A deposit slip was then completed for Spryfield Bingo.

36. Ricky Boutilier, Brian Yorke, Sayed Finiyanous or Karl would then go to the bank to make the deposits.(exhibits 8102, 8103, 8104 and 8106)

37. When Jamil was out of the country the money and cash reports were given to Karl up to April 1986 and after that date to Bachir Karam following the same procedures outlined in paragraphs 34, 35, and 36.

38. Brian Yorke in August 1985 commenced work at C.I.C. and ceased employment in January 1988. He held various positions at C.I.C., i.e. salesman and warehouseman, and was to follow certain procedures when product was ordered from C.I.C.. The procedure was as follows:

a) C.I.C. would receive orders from bingo halls either by telephone or in person; b) A three part sales order form was completed (order for product);

c) A three part “delivery receipt” was completed by warehouse staff;

d) The warehouse staff signed the “delivery receipt” when the order was filled;

e) Usually these “delivery receipts” would be signed by the

person who picked up the product at C.I.C.;

f) When the order was to be delivered by truck, after the order

was filled, it would be prepared for shipment;

g) When the product was to be delivered by a 3rd party separate three part “trucker’s delivery slip” was prepared;

h) The warehouseman would sign the “trucker’s delivery slip” authorizing delivery;

1) The trucker would then place the shipment on his truck;

j) One copy of the “trucker’s delivery slip” would be signed by the trucker and left at C.I.C.;

k) The other two copies of the “trucker’s delivery slip” would be taken by the trucker;

l) The “trucker’s delivery slip” did not list specific contents, only the number of pieces to be delivered;

m) Prior to mid 1986 there was no designated stock order forms;

n) There were occasions when emergency orders were purportedly needed at the bingo hall and the bingo manager would call in and the order would be either picked up by the bingo hall staff or C.I.C. staff for delivery. If it did no become part of regular delivery, J.Y.K. offices were advised of the order to account for it on a subsequent invoice for the specific hall that ordered it.

39. Two copies of the sales order form along with two copies of the delivery slip were forwarded to J.Y.K. office on the Friday of each week. One copy of each remained at C.I.C. warehouse.

40. During Jamil’s absences from Canada, it was a common occurrence to telex reports to Jamil in Lebanon relating to the activities of the various bingos and other business enterprises.

41. Clifton Evans delivered bingo supplies to Spryfield Bingo for C.I.C.. When he arrived at C.I.C., they would have the delivery sorted along with a 3 part trucker’s delivery slip confirming the number of pieces to be delivered. He signed one copy which he gave to Brian Yorke and then completed the delivery to the bingo hall where the person delivering the supplies signed the trucker’s delivery slip to acknowledge receipt of a specific number of pieces.

42. One copy of the trucker’s delivery slip was left with Spryfield Bingo and he, Clifton Evans, retained the signed copy. Clifton Evans then made out a 2 part invoice for his deliveries and attached the signed third part of the delivery slip to it. On Thursday of each week, Clifton Evans gave the bills to Debbie Tanner, an employee of C.I.C.. The second copy of the invoice was maintained in Mr. Evans’s books. On Friday of each week, Mr. Evans picked up his cheque from Rosealie Jackson.

43. Rosealie Jackson was the bookkeeper for Jamil and his companies during the period under review, maintaining and recording all financial information on Jamil’s bingo operations, including Spryfield Bingo.

44. Rosealie Jackson began as bookkeeper for Jamil and his companies back in 1971. Amongst her duties, Rosealie Jackson maintained the General Ledger figures, paid out the expenses on all the bingo operations, performed all record keeping and prepared all correspondence for Jamil and his companies.

45. There was an increase in revenue on the lottery reports for 1988 due in part to the prior year lottery reports not including revenue from the afternoon bingo, mini bingo and midnight bingo and incorrect prize structure.

46. The coil books and small black books summarizing the reports of revenue from the afternoon, flea market, evening bingo, midnight bingo and canteen rental were prepared by Rosealie Jackson, (exhibits 6619-6668, 6669-6707 and 6569-6618 inclusive) Mrs. Jackson prepared the weekly deposit versus expense summary as well as the monthly deposit versus revenue summary, (exhibits 6168-6303 inclusive)

47. Bachir Karam is a brother-in-law of Jamil. Bachir took over the position occupied by Karl in April 1986 and later became General Manager of C.I.C..

48. During 1986 and 1987, Bachir Karam would look after the operation of the bingos whenever Jamil left the country. One of his duties was to count the money received at the offices of J.Y.K. from all bingo halls in the same manner as described in paragraphs 34,35, and 36 above. The daily recap sheets were maintained for Jamil Karam until his return to Canada.

49. After the count, Bachir Karam or Sayed Finiyanous would make the deposits as directed by Rosealie Jackson. The daily recap sheets from January to March 1988 prepared by the bingo managers were given to Mrs. Jackson.

50. Doug Bruce, an officer with Revenue Canada in 1983, during a routine audit issued a letter dated May 9, 1983 to the bingo operations of St. John Ambulance and Haldart Investment Limited, (exhibits 5967 and 5968, 7907-7910 inclusive)

51. Gerald J. White, a Chartered Accountant with the firm of White, Burgess, Langille & Inman, was engaged during the period under review to prepare the unaudited financial statements and T2 returns of income for Spryfield Bingo and was called upon to give taxation advice when queries were raised by Revenue Canada.

52. The information used to prepare the necessary returns was provided to Gerald J. White by one of his staff who in return had received the information from Mrs. Jackson. A year end meeting was held with both JAmil Karam and Rosealie Jackson to discuss the financial statements of Spryfield Bingo.

53. The schedules sought to be tendered at trial and prepared by officers of Revenue Canada - Taxation reflects information gathered by Revenue Canada on the documents referred to therein without the necessity of referring to the original business records of Spryfield Bingo. The accuracy of these records reflect only the invoice number, date and type of cards billed to Spryfield Bingo.

54. All goods invoiced to Spryfield Bingo were, in fact, shipped from C.I.C..

55. The prize structure for afternoon and evening bingos at Spryfield Bingo were regulated and remained generally consistent throughout the period under review.

56. The prices paid by the public for bingo cards and books remained consistent at Spryfield Bingo throughout the period under review as is indicated in the game formats attached hereto.

57. The order or format of the approved bingo games remained consistent at Spryfield Bingo throughout the period under review - the playing public did not like changes to the colour of the bingo cards played, the games or the prizes.

58. Revenue Canada in calculating the gross sales figure of Spryfield Bingo worked on the assumption that all cards invoiced were delivered to Spryfield Bingo and used by Spryfield Bingo. They took the invoices showing cards purportedly shipped to Spryfield Bingo and multiplied them by the sales price of the card to arrive at the gross sales figure of the Spryfield Bingo. Prizes were factored into Revenue Canada’s calculations to arrive at net revenue.

59. For Revenue Canada calculations of the discrepancy they used

gross bingo income less prizes to equal net bingo revenue.

60. The Crown based upon the assumptions as outline in paragraphs 58 and 59 above if correct would have unreported income against Spryfield Bingo in the following amounts:

61. Terry Kelly was a Lottery Officer with the Nova Scotia Lottery Commission since 1980. His duties were to approve all lottery applications. He was responsible, in part, in establishing the policies and guidelines during 1983 for the charitable organizations to operate bingo.

62. In the early years, prior to 1981, there were only commercial bingos operating in Nova Scotia, then the first landlord/tenant arrangement came into existence. This arrangement was one where the commercial operator relinquished his bingo license to allow a charity to operate the bingo under a new license, from a bingo hall rented by the commercial operator to the charity. Spryfield Bingo carried on a commercial bingo and a cheritable bingo in the same hall.

63. Jamil Karam, a commercial bingo operator approached the Nova Scotia Lottery Commission to make an inquiry concerning a charitable license at Spryfield Bingo for Sundays. Jamil was concerned that other commercial bingo operators who added charity bingo to their halls held an advantage over his bingo hall. Jamil also attempted in January 1986 to have the commercial bingo prize limit increased to $500 per game; however, this request was denied by the Nova Scotia Lottery Commission.

64. The first charitable organization to operate a bingo with Jamil was the St. John Ambulance at T.C.A.. An official of the Nova Scotia Lottery Commission explained the process to Jamil and the officer of the charity regarding the policies and guidelines; copies of these policies and guidelines were given to the charity and to Jamil. A number of licenses were granted to other charities, including the Lebanese Association in 1981 to operate bingo at Spryfield and later in a number of halls rented by Jamil or his companies. In each application the entire process was explained to Jamil and the charity. Both Mr. Horner and Terry Kelly expressed to Jamil on December 16, 1987, their concerns that his company might be involved in the charity bingo operation more than it should during the period under review as outlined in exhibits 8034 to 8041 inclusive. Clyde Horner did write to Jamil in January, 1988 with the same concerns. In 1988, the Lebanese Association of Nova Scotia took over the actual operation of the charity bingo at Spryfield Bingo.

65. Though the charity bingo at Spryfield Bingo should have been operated by the charity, the Lebanese Association of Nova Scotia, during the period under review, Spryfield Bingo and J.Y.K., operated and managed the charity bingo during the period pursuant to a management agreement, (exhibits 252—54)

66. The books and records of Spryfield Bingo showed no revenue from Sunday bingos during the period under review.

67. Peter Holmes executive director of the St. John Ambulance from November 1983 to March 1987 was instructed by Jamil to pick up the monthly share of the bingo profit for St. John Ambulance in regard to proceeds from T.C.A., and Shannon Bingo from Karl Abou- Dib. The figures used to prepare the Nova Scotia Lottery Commis- sion report came from J.Y.K. offices. After Karl left T.C.A.’s employment in April 1986, Peter Holmes contacted Rosealie Jackson as per Jamil’s instructions and a similar process followed.

68. On December 28, 1983, Jamil advised Peter Holmes that it was impossible to keep track of the bingo cards being sold by means of their serial number.

69. On January 4, 1984, Jamil advised Peter Holmes that there was no way Jamil could reconcile bingo cards sold to cash at T.C.A. - Wyse Road to determine if the nightly sales were accurate. Mr. Holmes requested to see records of the bingo operation from Jamil but Mr. Holmes was denied access, however, neither Mr. Holmes, nor any member of St. John Ambulance was ever prevented from attending to bingo to obtain first hand information.

70. Victor Karam worked for Jamil from 1982 to January 2, 1984. He negotiated for cash bank drafts for Jamil from various banks throughout Halifax/Dartmouth. He exchanged $20.00 bills for $100.00 bills at various banks. The amount varied from $10,000.00 to $20,000.00 at a time and this was done on many occasions from the money referred to in paragraph 34.

71. Sayed Finiyanous began to work for Jamil in 1985 collecting bingo revenue from T.C.A. - Wyse Road and taking it over to the offices of J .Y.K.. All bingo revenue from all other bingo halls including Spryfield Bingo were placed in the safe at T.C.A. - Wyse Road. Sayed gave the revenue envelopes to Karl during the years 1985 to April 1986; later during the years 1986-1988 Sayed gave revenue to Bachir Karam or he placed it on the desk/meeting table in Jamil’s office. Jamil was present on many occasions. Sayed was involved in counting the revenue and making deposits to the company’s bank account. Sayed observed Jamil recording figures from the bingo operations in a little book which was kept by Jamil mostly in his pocket. Sayed also observed the shredding of daily recap sheets. Sayed personally exchanged cash money for bank drafts using various names during the period under review on behalf of Jamil in the amount of $10,000.00 to $25,000.00 from the money referred to in paragraph 34. These cheques were all deposited in Antoine Kawaja’a account in Paris. Sayed would also change $20.00 bills for $100.00 bills on behalf of Jamil; the amount varied from $10,000.00 to $20,000.00 at a time and this was done on many occasions at vari- ous banks throughout Halifax/Dartmouth again from the money referred to above and in paragraph 34.

72. Jamil Karam during the period under review would call Mr. Chediac to tell him that the donation for the Lebanese Association of Nova Scotia was ready and Mr. Chediac would send Ramiz Haddad to pick up the money from Rosealie Jackson or Karl.

73. Ramiz Haddad was Treasurer of the Lebanese Association of Nova Scotia since 1984; but as far back as 1983, he collected the donations for Sunday Spryfield Bingo from J.Y.K.’s office.

74. The Lebanese Association of Nova Scotia generally took no active part in the operation of bingo or in making of the cash reports at Spryfield Bingo during the period under review.

75. Exhibits 832-844, 5917 to 5923 inclusive are lottery reports filed by the Lebanese Association of Nova Scotia.

76. Charles Chediac was President of the Lebanese Association of Nova Scotia from 1982 after Jamil Karam resigned form the position.

77. The Lebanese Association of Nova Scotia began to sponsor bingos at Spryfield Bingo at night in 1981.

78. The Lebanese Association of Nova Scotia only signed the application for the charity bingo license but Spryfield Bingo operated the bingo.

79. The information on the Lebanese Association of Nova Scotia lottery reports came from Karl Abou-Dib and employees of J.Y.K. for the period under review.

80. Bingo operation at Spryfield Bingo fluctuated on a weekly and yearly cycle. Monday, Tuesday and Wednesday were not as busy as Thursday, Friday, Saturday and Sunday. Sunday was the busiest day since prizes were the highest. January, February, March, April, October, November and the first half of December were generally more busy than May, June, July, August, September and the last half of December. This cycle was generally consistent throughout the period under review.

81. Victor Karam prepared Exhibits 3733 to 3742 at TCA Bingo - Wyse Road, Dartmouth, Nova Scotia, for Spryfield Bingo. Bingo books and bingo cards during a period from November 9, 1984 to December 17, 1984 were delivered to TCA Bingo - Wyse Road where Victor Karam distributed the bingo supplies on a daily basis to the 5 bingo managers of; TCA Bingo - Wyse Road, TCA Bingo - Caledonia, Woodside Bingo, Shannon Bingo, Spryfield Bingo. Each day the 5 bingo managers would return the previous days unused bingo supplies and receive a new supply; Victor Karam made an accounting of the books and specials sold on a daily basis during the above-noted period. When he received the bingo books and bingo cards back from the 5 bingo managers, at no time did he compare the amounts sold to the cash reports. At no time did he match bingo books or bingo cards delivered to that sold in bingo halls.

As indicated, this statement of facts was entered as evidence by agreement between the Crown and the Defence.

The Case for the Prosecution and the Defence

The Crown did not call witnesses in its came-in-chief relying for its prima facie case on the Admission of Facts outlined above which included as evidence a synopsis of the evidence of Eugene Carew, Robert Boudreau and Wayne Teasdale.

The defence called a number of witnesses including employees and former employees of J.Y.K., C.I.C., Spryfield Bingo Ltd., bingo customers, accountants and officials from the Lebanese Association of Nova Scotia and the Nova Scotia Gaming Control Commission. The Crown did not call any rebuttal evidence.

Review of the Evidence

I have listened to all the evidence, reviewed my notes and the transcripts of the trial and examined all of the exhibits as well as the written and oral submissions of counsel.

The Crown’s position based on the documentary evidence tendered at the trial is that there is $1,623,623.00 of unreported income earned by Spryfield Bingo during the period under review attracting a tax liability of $582,703.04.

The Defence maintains that the Crown relied on assumptions which were mistaken and wrong and that there was no unreported income.

Revenue Canada investigator, Eugene Carew, began his investigation in December, 1987. Because the daily cash reports for Spryfield Bingo were unavailable for examination, he sought another means of calculating Spryfield Bingo’s tax liability. Concluding that the retail prices of the vari- ous bingo cards with the odd exception remained fairly constant during the period under review, he determined that it was possible to calculate Spryfield Bingo’s gross revenue by multiplying the number of cards invoiced to Spryfield Bingo by the selling prices of the various cards, discounting beginning and ending inventories as small and immaterial. Mr. Carew also realized that the prize structure claimed in Spryfield Bingo’s income tax returns had been understated and went on to calculate a prize rate of 63.02% of gross revenue based on the information contained in the daily cash reports for Spryfield Bingo from 1988. To allow for cards lost, stolen or wasted, Mr. Carew rounded this figure of 63.02% up to 65%.

Revenue Canada’s reassessment therefore depends for its validity on two key assumptions:

(1) that all cards invoiced to Spryfield Bingo during the period under review were, except for a small amount of cards, lost to theft, waste, or other causes, delivered to, received by, and sold at Spryfield Bingo; and

(2) the assumption that Spryfield Bingo used a prize structure of 65% throughout the period under review.

The defence maintains that the assumptions made by Revenue Canada are negated by the evidence.

Caroline Feindel, a chartered accountant, testified as an expert witness for the defence with respect to internal control systems and business documentation. I accept her evidence that during the period under review there did not appear to be internal controls in place at Spryfield Bingo particularly with respect to the receipt of goods and the control of inventory.

The procedures adopted for ordering and delivery that were supposed to be followed are outlined in paragraphs 38 to 39 of the Admission of Facts.

The failure to comply with these procedures was evident in the testimony of a number witnesses.

Antoine Youssef Dahdah testified that when he worked at C.I.C. as a “shipper” from 1984 until 1986 his duties included preparing orders and filling out packing slips (referred to in the admission of facts as “delivery receipts”). Mr. Dahdah testified that sometimes these slips were signed by the person picking up the order and sometimes they weren’t signed. He further testified that he himself made occasional deliveries of product to Spryfield Bingo and the product would not be signed for. He also stated that he sometimes dropped product invoiced to Spryfield Bingo at TCA Bingo where he assumed it would be picked up by manager Earl Wilkinson. How- ever, he admitted that he would simply drop it off inside TCA Bingo and did not know what happened to it after that.

As well, there was no system of inspection in effect upon receipt of the bingo product boxes to compare the goods to the purchase order to ensure that what was received was in effect what was ordered or invoiced to Spryfield Bingo. In addition, there was a loose system of control over the boxes of product once it was received at the bingo hall. Unsuccessful attempts were made to control the inventory at Spryfield Bingo during the years under review but in the end there was a complete failure of management to adequately maintain control over the goods shipped to Spryfield Bingo. Not only was there no perpetual inventory system in place at Spryfield Bingo, there was no inventory system at all.

The Crown’s position is that the issue of the determination of the actus reus in this proceeding centers on the correctness of the net receipts recorded in the corporate records of Spryfield Bingo and then certified as true and correct by Jamil Karam in the tax returns of Spryfield Bingo.

The position of the defence is that the net receipts recorded as revenues are correct and that there is therefore no actus reus supporting any of the charges.

I agree with the Crown contention that the normal procedure would be to record individual sales on source documents such as daily cash reports; record them in books of original entry; summarize them in a General Ledger and present them on an Income Statement.

The method used to determine the amount deposited to the bank is found in the admission of facts where Wayne Teasdale states that a deposit slip was completed for Spryfield Bingo by an employee of J.Y.K. based on projected amounts needed to cover Spryfield Bingo expenses.

The Income Tax Act requires in s. 230(1) that every person carrying on business shall keep books and records in such form and containing such information as will enable the taxes payable to be determined. However, the accused is not charged with failure to keep “adequate” books of account. The accused is charged with wilful failure to disclose income and making deceptive or false statements in tax returns leading to the evasion of payment of taxes.

At the same time, the court is entitled to look at the state of these books of account as one factor in its determination of whether income has not been reported and taxes evaded by false or deceptive statements.

The evidence in this case discloses the activities of a private company run in a very careless manner. Some records were kept but the operation was replete with procedural irregularities one would not normally expect in such an operation.

The Crown argues that there existed an elaborate but simple scheme of deception to avoid taxes. The defence argues it is equally consistent with simple sloppiness, neglect and mismanagement.

Nancy Tough, a defence witness who was employed by J.Y.K. as a bingo supervisor testified that she attempted to get some control over the operations at Spryfield Bingo. I found Ms. Tough to be an impressive and credible witness who explained her frustration in trying to get some semblance of organization and management control over the activities of Spryfield Bingo. Her efforts were met by resistance both by the local manager, Earl Wilkinson and other employees of C.I.C. and J.Y.K. Holdings.

Unlike the TCA Bingo, Shannon Bingo, and Woodside, Spryfield Bingo during the period under review was not even trying to run stock or inventory sheets to track what came in and what was used.

A number of witnesses for the defence testified that while the cards were supposed to be stored in the manager’s office with the specials stored in a cupboard within that office, both of which were to be secured with locks, often the office and cupboard were not locked and cards were just “laying about”.

The court heard evidence of thefts of cards as well as wastage. As well, defence witnesses testified regarding cards being given free of charge to customers by Earl Wilkinson, the manager at Spryfield Bingo. In addition, the court was told about games being played on bingo product for the benefit of the staff and not for the benefit of Spryfield Bingo. The Crown has allowed in its calculations some latitude for shrinkage caused by theft and wastage. The defence maintains that the loss of cards was far greater than the Crown has allowed.

Nancy Tough testified regarding the wholesale wastage of hundreds of cards at a time. She stated that when they were worried they wouldn’t have enough cards for a game, they would start over with a new set of cards that came in. Not wanting to duplicate any cards, the old cards which were left over were just put in the cupboard and afterwards thrown away.

Antoine Dahdah testified that when he worked at C.I.C. in 1984 and 1985, he picked up loose cards from Spryfield Bingo and the other bingo halls. He took them back to C.I.C. where he was told to simply discard them. He further testified that these were replaced by new cards and that as far as he knew Spryfield Bingo did not receive credit for these destroyed cards. Nancy Tough also testified that she was not aware of any credits given for cards destroyed.

Testimony was also presented that cases of bingo product were seen at homes of various persons associated with Spryfield Bingo. In particular, a significant amount of bingo product was seen at the home of Spryfield Bingo Manager, Earl Wilkinson and his son, Larry Wilkinson and son-in- law, Brian Yorke. In addition, testimony of Peter James Leblanc and Annie Mason was to the effect that cards used at Legion Bingo where Earl Wilkinson worked after leaving Spryfield Bingo was the same product that had been used at Spryfield Bingo.

James Menzies, an accountant now employed by J.Y.K. Holdings Limited, testified that he was unable to find any indication that any product was invoiced to Legion Bingo by C.I.C.. Mr. Menzies who analysed the purchase of product by Spryfield Bingo for the period under review, comparing the volume of product invoiced with the volume of games known to have been played, concluded that there were sizable overages of bingo product for all four years. The size of the overages remained fairly constant from 1984 to 1986 and then suddenly dropped in 1987 on the departure of Mr. Wilkinson to go on his own at Legion Bingo.

The cost of the bingo product was relatively insignificant compared to its value upon sale at the bingo hall. This may explain in part the careless handling of the product which was simply regarded as only paper.

Revenue Canada in its calculations included Sunday Bingo for its reassessment. The defence called Terrance Kelly, the Director of Licensing and Registration with the Nova Scotia Gaming Control Commission, who testified that L.A.N.S. (Lebanese Association of Nova Scotia or the Metropolitan Lebanese Association, as it then was) had been granted a license to operate charity bingo at Spryfield Bingo on Sundays. Because it was a charity bingo, the prizes were higher and not restricted as they were on the other six days, as the revenue generated was to go to the charity. It is undisputed that these bingo sessions generated large numbers of customers because of the larger prizes offered.

Jehad Khoury testified that he was L.A.N.S. social chairman in the early 1980’s and President in the later 1980’s. He testified that the association, which had as its object the preservation of the Lebanese culture, held extravagant events on holidays and throughout the year and that in addition to the amounts taken in by L.A.N.S. through memberships and donations, a further $35,000.00 to $40,000.00 was needed each year to operate. No other source of further revenue other than the charity bingos run for the benefit of the Association was identified in this proceeding.

The defence relied heavily on the summary of adjustments to the reassessment made by its expert witness James Menzies, the chartered accountant who now works for J.Y.K. Holdings Limited.

Mr. Menzies testified that he conducted an analyses of the documentation that Revenue Canada used to produce its reassessment of Spryfield Bingo and found problems with it in five areas:

(1) miscalculation of prize amounts;

(2) failure to deduct L.A.N.S. revenue;

(3) timing and addition errors;

(4) calculation errors of cards; and

(5) volume errors.

(1) Miscalculation of Prize Structure

There is no question but that the prize amounts in the documentation of Spryfield Bingo were clearly incorrect. Using the admission of facts and the format of the games, Mr. Menzies multiplied the numbers of each game played by the corresponding amounts to arrive at the yearly prize amounts. However, because midnight bingo had no format, he used a prize structure of 85% based on his experience in the bingo business. This analysis produced yearly prize amounts of $989,732.00 for 1984, $1,248,642.00 for 1985, $1,518,722.00 for 1986, and $1,672,700.00 for 1987 for a total of $5,429,796.00.

Since the larger prize amounts did not increase Spryfield Bingo’s net revenue, there of course is no increased tax liability to Revenue Canada. However, these revised amounts do indicate that Spryfield Bingo owes more to the Province of Nova Scotia pursuant to its licensing agreement with the Lottery Commission.

(2) Failure to Deduct L.A.N.S. Revenue

For his calculation, Mr. Menzies conservatively allowed that Sunday Bingo generated net revenue at least as much as the lowest revenue ever generated by Spryfield Bingo during the other days of the week ($450.00 for regular bingo and $50.00 for midnight bingo) for a total of $500.00 per Sunday. Adding the daily prize amounts to the daily net revenues and multiplying by the number of Sundays, Mr. Menzies presented figures for L.A.N.S. of gross revenue of $295,917.00 for 1984, $294,833.00 for 1985, $344,933.00 for 1986 and $355,183.00 for 1987, for a total of $1,290,866.00.

Mr. Menzies testified further that he could find no evidence from the documentation that any revenue from Sunday Bingo had ever gone to Spryfield Bingo for the period under review.

(3) Timing and Addition Errors

The timing errors identified by Mr. Menzies are the inclusion within the period under review of invoices dated outside the review period. This resulted in a reassessment of minus $64,000.00 for 1984 according to Mr. Menzies.

The addition errors found by Mr. Menzies were in 1986 where he found what he referred to as a transposition error which was to the disadvantage of Revenue Canada. Revenue Canada had in its column found 569,000 units when instead the total should have been 596,000 for a total of $596,00.00 or a difference of plus $11,000.00 for 1986.

(4) Calculation Errors of Cards

Camile Maksissi analysed Revenue Canada’s extensions of bingo product, i.e. the multiplying of the numbers of cards by prizes. He found a number of errors in the conversions used by Revenue Canada as to the number of units per item; some in Revenue Canada’s favour, others in Spryfield Bingo’s favour over the four year period under review. Based on these errors he arrived at revisions in the assessments of minus $35,500.00 for 1984, minus $26,000.00 for 1985, minus $2,000.00 for 1986 and minus $65,000.00 for 1987 for a total of $128,500.00

(5) Volume Errors

Mr. Menzies used 1988 as a base year since he had copies of daily cash reports to work with for that year. Although some bingo players similar to other forms of persons with an addiction to gambling will play regardless of their financial circumstances, Mr. Menzies related the figures from 1988 to earlier years taking into account the changing economic conditions in each year.

He relied for his analyses on data correlated by Statistics Canada (ex hibit 8197 tab 14) relating to the after tax disposable income of Canadian taxpayers for the years in question, focusing on the lowest quintile of income earners who in Mr. Menzies’ opinion make up the largest percentage of bingo players. The date provided by Statistics Canada indicates that these persons in 1987 had 96.85% of the disposable income they had in 1988 while in 1986 they had 95.08% of the disposable income they had in 1988, while in 1985 they had 93.60% of the disposable income they had in 1988, while in 1984 they had 88.74% of the disposable income they had in 1988, while in 1983 they had 89.96% of the disposable income they had in 1988. He then correlated this data with the fiscal years of Spryfield Bingo and used the revised percentages to calculate the average use per day of bingo product in the years 1984 to 1987 inclusive.

Using this analyses, Mr. Menzies did a reconstruction of perpetual inventory, using the customer usage information along with the product purchase information provided by the invoices and found a significant shortage in some products and overages of other products. While he was able to account for almost all of the shortages by assuming they were covered by “cut” cards from other products, he was not as successful explaining the overages of products which were left over in the analyses.

After doing the re-analysis of the Revenue Canada reassessment and recording his conclusions in his summary of adjustments, Mr. Menzies concluded that the reassessment went from $8,776,700.00 down to $6,588,024.00

He then went on to conduct an analysis of Spryfield Bingo’s gross revenue by calculating the net revenue generated by the sale of cards and adding to this the prize amounts. He arrived at the net revenue by referring to the synopsis of bank deposits and bank statements. He calculated the amounts given out in cash from weekly and monthly “draws” which were held at Spryfield Bingo which remained constant except for 1984 when bingo was not operated on Tuesday afternoon. He concluded that these “draws” amounted to cash prize awards of $32,000.00 for 1984, $33,300.00 for 1985, $33,300.00 for 1986, $33,300.00 for 1987 for a total of $131,900.00. Mr. Menzies then went on to calculate salaries paid out since these had been added to the net receipts (including Sundays since Spryfield Bingo paid all the costs for L.A.N.S. to operate the charity bingo) and arrived at a total of $124,560.00 for the period under review.

Mr. Menzies also subtracted from the net receipts the net revenue from mini-bingo which was played on slide cards rather than paper. He used the same formula he had used previously by establishing the average net revenue from his base year of 1988 and projecting that figure backwards using the Statistics Canada data on changing economic conditions and multiplying the result by the number of days in each year in which mini bingo was played. His total for the four years under review came to $313,706.00

In the end, this analyses by Mr. Menzies in his calculations produced figures of net revenue from the sale of cards of $276,477.00 for 1984, $312,301.00 for 1985, $361,198.00 for 1986 and $550,561.00 for 1987. The total net revenue for the years in question according to Mr. Menzies’ calculations is $1,500,537.00 which when added to the total prize amount in his analyses produces a total revenue of $6,930,333.00. This figure compares very closely to the amount of $6,588,024.00 which was the final adjustment figure Mr. Menzies arrived at in his review of Revenue Canada’s reassessment.

Taking into account the inventory which was left in stock at the end of the period under review according to Mr. Menzies calculations, $105,000.00 subtracted from the $342,309.00 difference brings the gulf between the gross revenue derived from the revised reassessment and the gross revenue derived from Spry field Bingo’s net receipts down to $237,309.00.

The defence maintains that evidence that large quantities of bingo product invoiced to Spryfield Bingo was unaccounted for and not sold raises a reasonable doubt that a substantial number of cards were not delivered, received and sold at Spryfield Bingo as Revenue Canada assumed in the admission of facts, paragraph 58, and at the heart of its reassessment calculations.

The Crown submits that a vital question to ask is who stands to benefit from that lack of control? Who stands to benefit by the destruction of the daily cash reports, the source document that could have shown the gross receipts generated at Spryfield Bingo? Who stands to benefit if federal income tax is not paid from 1983 to 1988? Who benefits, until detected, if the lottery tax owing to the Nova Scotia Lottery Commission is underpaid by Spryfield Bingo?

The position of the Crown is that Jamil Karam, the principle shareholder and directing mind of the accused, Spryfield Bingo Limited, was an experienced businessman who knew what was going on when it came to money matters and that his first and primary interest was to line his own pockets and not account for what he truly owed for provincial nor federal tax obligations.

The Crown presented a “net worth assessment” relating to Jamil Karam. It was not an assessment of the kind usually calculated by Revenue Canada but rather a compilation of figures offered by Mr. Karam for mortgage purposes.

Revenue Canada often has to resort to its own net worth assessment reconstruction of a taxpayer’s income in reassessment cases. The use of this method has been well described in the “civil” reassessment case of Ramey v. R. (1993), 93 D.T.C. 791 (T.C.C.) , where Bourman, J. stated at p. 793:

The net worth method of estimating income is an unsatisfactory and imprecise way of determining a taxpayer’s income for the year. It is a blunt instrument of which the Minister must avail himself as a last resort. A net worth assessment involves a comparison of a taxpayer’s net worth, 1.e., the cost of his assets less his liabilities, at the beginning of a year, with his net worth at the en’d of the year. To the difference so determined there are added his expenditures in the year. The resulting figure is assumed to be his income unless the taxpayer establishes the contrary. Such assessments may be inaccurate within a range of indeterminate magnitude but unless they are shown to be wrong they stand. It is almost impossible to challenge such assessments piecemeal. The only truly effective way of disputing them is by means of a complete reconstruction of a taxpayer’s income for a year. A taxpayer whose business records and method of reporting income are in such a state of disarray that a net worth assessment is required is frequently the author of his or her own misfortunes.

Such an assessment, although arbitrary, is useful in establishing liability on the civil side. However, I have difficulty in giving this particular net worth assessment a great deal of weight in this proceeding. Although it is a factor which may be taken into consideration, it must be kept in mind that Jamil Karam in addition to operating Spryfield Bingo during 1984-1987 was also operating Woodside Bingo, Shannon Bingo, TCA Bingo - Wyse Road, TCA Bingo - Caledonia, C.I.C. and J.Y.K. along with several other businesses including hotels.

The defence has made it clear that it is not defending Jamil Karam here and that charges are still outstanding against him personally under the Income Tax Act.

The defence concedes that the prize amounts reported in the reports and statements of Spryfield Bingo were incorrectly reported by Rosealie Jack- son, Jamil Karam’s bookkeeper due to her failing to keep track of the changing prize structure over the period under review and earlier. Unlike the charity bingos which had higher prize limits, the commercial bingos were limited in their prize amounts to $100.00 per game. While the revised prize amounts, being larger than the amounts originally reported, would result in greater license fees owed to the Lottery Commission, they were set amounts regardless of the number of cards sold and therefore these increased prize amounts did not necessarily increased the accused’s federal tax liability.

There is no doubt whatsoever that the under reporting of the prizes paid out means that Spryfield Bingo owes unpaid taxes in the area of $600,000.00 to the Nova Scotia Gaming Commission representing 10% of prizes for commercial bingo.

Of course, the question to be ultimately decided here is not what is owed to the Gaming Commission but instead whether the Crown has proven beyond a reasonable doubt that income subject to federal income tax was not reported by Spryfield Bingo Limited.

The Crown strenuously argues that the lynch pin to the understanding of the evasion of federal taxes is the scenario which took place once a week around the table at J.Y.K. with the reconciliation of the daily cash reports to the cash receipts. In counting the cash, the seven day previous cash reports from all the bingo halls including Spryfield Bingo was on that table. No funds generated from all of Jamil Karam’s bingo halls from the previous seven days were deposited until it was counted and reconciled on “Deposit Day”. The details from the daily cash reports were recorded by Jamil Karam in his little portable record book. Afterwards the daily cash reports were destroyed.

Sayed Finiyanous and Victor Karam during the years 1983 to 1988 bought bank drafts for Jamil Karam from various banks throughout the Hal- ifax/Dartmouth area on many occasions in amounts varying from $10,000.00 to $25,000.00 at a time, from the cash that was counted at the Concorde Inn and also from cash that was generated by Spryfield Bingo and the other four bingo halls.

There are a number of inculpatory inferences which may be drawn from the suspicious activities carried on at J.Y.K. as outlined in the admission of facts. The manner in which bank drafts were obtained from various banks in large amounts from the monies referred to in paragraph 34 of the agreed statement of facts certainly raises suspicions. However, in light of the defence evidence presented, the Crown not calling rebuttal evidence, is it conclusive of guilt beyond a reasonable doubt?

Undoubtedly, one of the main witnesses for the defence was James Menzies. Although he was not an employee of the accused during the period under review, he is now an employee of J.Y.K. and therefore his evidence was scrutinized with great care. He gave a detailed analyses of Revenue Canada’s reassessment and the adjustments he made to it as a result of the methodology he adopted. I found his evidence impressive and helpful in regard to an understanding of Spryfield Bingo’s counter position to Revenue Canada’s reassessment leading to his conclusion that no federal taxes were owed by the accused.

I find his answers to have been direct and not evasive in regard to the material parts of his testimony. There was nothing in the demeanour of Mr. Menzies nor in his manner of giving evidence that diminished the weight to be given to it.

The defence witnesses detailed mismanagement and gross neglect in the care and control of the bingo product destined for Spryfield Bingo. Employees of C.I.C. and Spryfield Bingo, including manager Earl Wilkinson and his relatives, were seen to have large number of bingo product in their homes. There was evidence of card “give aways”, thefts and destruction. No perpetual control of the inventory was ever kept running at Spryfield Bingo for the period under review.

The prosecution chose to rely on the admission of facts and the exhibits filed and did not call rebuttal evidence in answer to the sworn testimony of defence witnesses who supplied names of people who would have been knowledgeable about certain events and might have been able to give evidence concerning allegations made against them by the defence witnesses.

In my review of the evidence, I have considered the very cogent argument of the Crown in addressing the issues raised by the defence witnesses; in particular the evidence of Mr. Menzies and the Crown’s analyses of it based on all of the documentation before the court.

I have also kept in mind that the Crown does not have the burden of negativing every conjectural “possibility”. (R. v. Wild, [1970] 4 C.C.C. 40 (S.C.C.))

In this case Revenue Canada performed a difficult task in attempting to reconstruct the records of Spryfield Bingo.

The case for the prosecution which consisted of accounting and other documentary evidence was well investigated, prepared and presented. The inculpatory inferences to be drawn from the documents and the destruction of the one document which would have clearly shown the revenue gener- ated at Spryfield Bingo are compelling. The evidence does indicate that on a balance of probabilities, the accused had unreported income from the operation of its business.

At the same time the defence presented a case on the other side of the scale which I am unable to reject on the standard of proof required in a criminal case.

It is a question of whether the defence evidence leaves the Court in a state of reasonable doubt viewed in the context of all of the evidence. See R. v. Nimchuk (1977), 33 C.C.C. (2d) 209 (Ont. C.A.), R. v. Chailice (1979), 45 C.C.C. (2d) 546 (Ont. C.A.), R. v. W. (D.) (1991), 63 C.C.C. (3d) 397 (S.C.C.).

The ultimate question is not simply which version to accept but whether on all of the evidence, the Crown has proven the guilt of the accused beyond a reasonable doubt.

in the recent case of R. v. Brydon (1996), 101 C.C.C. (3d) 481 (S.C.C.), Chief Justice Lamer of the Supreme Court of Canada made the following observation at p. 490:

I wish to add that in my opinion instructing a jury that proof beyond a reasonable doubt is not met if the jurors can only conclude that the accused is 'probably' or ‘likely’ guilty is a quite useful manner to convey the meaning of such an elusive concept. (emphasis added)

In the case of R. v. Deslauriers (1991), 77 Man. R. (2d) 48 (Man. Q.B.), Scollin, J. of the Manitoba Court of Queen’s Bench in dealing with a fraud charge was presented with much the same situation. At pp.75-76, he stated:

he discerned the suspicion of manipulation which I have found unavoidable despite the explanations which I have been unable to reject in the light of the whole of the evidence and the standards of cogency demanded by the criminal law; he was unable - as I am - to put his position as more than suspicion. Had he been more specific in isolating in detail the specific transactions on which he relied to infer a pattern, I would have been better equipped to judge for myself whether those suspicions amounted - whatever his own conclusion - to proof beyond a reasonable doubt of criminal misconduct.

...Cold numbers can benumb the mind. Unlike the American case referred to earlier, where there was a great deal of evidence about actual conduct in the trading pit and elsewhere, count one in the present case depends very much on inferences from numbers and percentages alone. There is serious risk inherent in letting any but the most incontestable array of figures determine criminality without sound support from other incriminating circumstances. In the end of the day, the Crown case on count one lacks that support and comes down to a numerical display which scintillates more than it illuminates. The suspicions which the numbers raise fall short of proof beyond a reasonable doubt and the accused are accordingly acquitted on this count.

Much of the Crown’s case rested on implied assumptions as to what was occurring in the transaction of business with regard to the actual use of bingo product at Spryfield Bingo.

There is no mistaking the fact that the activities of Jamil Karam as the operating mind of the accused company are questionable and highly suspicious, but the Court in a criminal case cannot convict on mere suspicion. I must render a decision only on the basis of the evidence presented. Any reasonable doubt must be resolved in favour of the accused.

Although I find it difficult to accept that Jamil Karam as the operating mind of the accused company would have allowed it to continue to operate in such a deplorable state as depicted for the taxation years under review and was unquestionably the one who stood to profit if income was hidden, I must apply the law as it relates to these charges solely on the evidence before the court. The burden of proof on the Crown is not on a “balance of probabilities” as it would be in the “civil” process of reassessment.

Taking all the facts into consideration, I have concluded that on the evidence presented before me by the Crown and the Defence, that the Crown has not met the high onus which it bears in what is essentially a criminal prosecution.

The burden is on the Crown to prove its case beyond a reasonable doubt. On the evidence, I am unable to find that the prosecution has discharged the onus of proving its case to the exclusion of any reasonable doubt that the accused, Spryfield Bingo and Amusement Centre Ltd., owed income tax in the years under review. As well, I am unable to conclude that the Crown has proven beyond a reasonable doubt that the accused, Spryfield Bingo and Amusement Centre Ltd., made false or deceptive statements in returns filed regarding the taxable income for those same years.

Accordingly, I find the accused not guilty on all eight counts.

Accused acquitted.