Tabatabai v. R., [1998] 3 CTC 2673

Margeson T.C.J.:

The matter before the Court at this time for decision is that of Hamid Reza Tabatabai and the issue for determination is whether or not the Appellant failed to report business income earned with North Shore Taxi (N.S.T.) during the 1992 taxation year.

The Minister reassessed the Appellant in accordance with paragraph 3 of the Reply to Notice of Appeal (Reply) by increasing the net business income by the amount of $6,350, assessed tip income in the amount of $1,985 and applied penalties on the basis of gross negligence on the unreported net business income.

The Minister set out in the Reply a number of presumptions upon which he relied and the majority of these presumptions were not even addressed. With respect to paragraph 4(b) the Appellant denied in his evidence that he was operating the taxi on a %o basis. That did not apply to him because he had a problem with the manager at that time. The manager told him that the owner was not happy with the amount of money that the taxi-cab was earning and consequently he did not have the option of being an employee. He was told that he should lease the vehicle and operate it on that basis.

Apart from that, the Appellant really did not address the other presumptions of fact contained in the Reply and to that extent, of course, they were unrebutted.

The evidence introduced in this case by the Minister was cogent evidence. The Court is satisfied that the basis upon which the Minister assessed the Appellant was the same basis as set out in the cases to which the Respondent has referred.

The case of Farahani v. R. (February 25, 1997), Doc. 96-4047(IT)I (T.C.C.) was decided by Teskey, J., and involved the same taxi company that was involved here. In that case the Court was satisfied that the Appellant earned the income, that he deliberately did not report it and that he was subject to the penalties.

The evidence before this Court, given by Mr. Marquis on the formula used by Revenue Canada and the process that it used to determine and assign what it referred to as unreported income to the Appellant, was as exact as one could devise under the circumstances.

The Court is satisfied on the basis of the examination and cross- examination of Mr. Marquis that Revenue Canada, in determining the basis for the reassessment, took into account the variables, the various contingencies such as some of the problems that the taxi drivers might have in receiving all of their income, bad debts, cancelled credit cards and cases where credit cards were used and yet the driver was not paid. His evidence was clear that these factors were considered when Revenue Canada was devising the proper formula for the assessment of tips.

Counsel for the Respondent was clearly correct when he cited the various sections of the Income Tax Act (the Act) which say that it is the duty of the taxpayer to keep records, to establish and report to Revenue Canada what their income was in the year under appeal. The Appellant in this particular case kept no records which he could show to Revenue Canada, nor any records which he presented to this Court, which would in any way rebut the presumptions contained in the Reply or which, in any way, would rebut the evidence given by Mr. Marquis or the documentary evidence as to the amount of money that the Appellant was alleged to have earned in the year in question.

Counsel for the Respondent said in his argument that this is a case where penalties should be imposed. He referred again, to Hossein Farahani, supra, which was a N.S.T. case. According to counsel for the Respondent, there, as here, there was a complete failure to report the income. There was no explanation as to why it was not reported except that he did not report it.

It was entirely up to the Appellant to do so and he did not do it. He said that he kept records only for two years and then disposed of them. That is hardly any compliance with the Act which requires them to be kept and requires the taxpayer to present them if required to support his income tax return.

Section 230 of the Act requires proper books and records of account to be kept by those who operate businesses. It was the duty of the Appellant to do so and he has failed to do so according to counsel for the Respondent.

The Appellant gave what counsel referred to as anecdotal evidence with respect to 1992 to show why he would not have earned the income that was assessed to him, but he had no records to back that up. That evidence, according to counsel for the Respondent, is insufficient to rebut the assessment. He pointed out that according to the records, the Appellant worked 184 shifts in 1992. He reported no income whatsoever from the shift leasing income. Seventy-four per cent of his income, according to the Respondent, was not reported in 1992 and 100 per cent of the income from one source, the taxi business itself, was not reported.

The information relied upon by the Minister was the best information that could be obtained. Indeed, the Court finds that the information that the Minister relied upon was information which was in essence supplied by the Appellant himself. That information was given to the taxi company and that is what provided the source information for Revenue Canada to make the assessment that it did. It was the best information that was available.

The only other information that might have been acceptable would have been the information provided by the taxi driver himself if he had kept proper records. But in this particular case he kept no records. He could hardly dispute the assessment that was made of him in this particular case.

Oral evidence, according to counsel for the Respondent, of tips being lower than that which the Minister has assessed to the Appellant is insufficient to rebut the evidence that was presented by the Minister that this was the best formula that was possible under the circumstances. It was based upon conversations with taxi drivers, taxi owners, taxi operators and took into account some of the contingencies which taxi operators would face in the normal course of their driving a taxi.

Mr. Marquis indicated that the tips rate or the percentage was fair, taking into account all of these contingencies.

Counsel referred to Cliche-Paquet v. Minister of National Revenue, (1980), 80 D.T.C. 1282 (T.R.B.), which was a case decided by the Tax Review Board, by R. St. Onge, Q.C., when he was a member of that Board. In that case, the now Judge of the Tax Court of Canada, indicated that the Minister had done his duty and had used the best method to establish the Appellant’s income that could be used. The case of Munn v. R., (1994), 95 D.T.C. 214 (T.C.C.), which was a case decided by Judge Bonner of the Tax Court of Canada, made it quite clear that because of the nature of the enterprise, the precise amount of that income was difficult to ascertain because the Appellant chose to deal in cash and keep no records in order to evade income tax.

In the case at bar, the Appellant said that he kept records, but he chose to dispose of them, thereby preventing this Court from having the benefit of any information which he might have provided. Since the records were not presented to the Court, they can hardly form the basis for refuting the method that the Minister used for the assessment.

Bonner, T.C.C.J., further said in Munn, supra, that in respect to the year in question

...1 find that there is no reliable evidence on which it can be found that the appellant’s income is less than assessed.

In the case at bar, the Court finds likewise, that there is no evidence upon which the Court can rely to show that the Minister’s assessment was incorrect.

Finally in Munn, supra, at page 216, Bonner, T.C.C.J., said:

The appropriate action in [cases where the taxpayer has cheated the government or has failed to list income or report income] is the imposition of penalties and where warranted, prosecution.

This Court is only involved in the penalties aspect under subsection 163(2) of the Act.

Counsel also referred to the case of 421229 Ontario Ltd. v. R., (1994), 95 D.T.C. 5087 (Fed. T.D.) which basically found that the plaintiff had not proved that the Minister’s reassessments were incorrect. The circumstances with respect to the non-disclosure of income clearly demonstrated gross negligence with respect to subsection 163(2) of the Act.

Counsel for the Respondent argued that the appeal should be dismissed.

The Appellant in argument said that he was not given the option to be an employee or to operate on a shift-lease basis because of the problem that he had with the general manager or the manager of the taxi company. He was forced to drive the cab as a lessee and not as an employee. He tried to obtain the yellow sheets from the company but he could not. But, as the evidence disclosed, the yellow sheets that he was talking about would be the very information which the Minister relied upon and the auditors relied upon in making the assessment that they did. That would be the company’s copy of the two sheets, one apparently which went to the owner and one that went to the company.

But again that hardly diminishes the responsibility of the Appellant to keep his own records which would have been available if there was any question about the propriety of the records that the Minister used. But we do not have that evidence here.

The Appellant said that by not having access to the records “I was unable to prove my case”. He said that he did not even claim any losses. He was a full-time student and could not have earned the amount that the Minister has assessed against him.

Now, in a case of this nature, it is not an answer to the reassessment, nor a réfutai of the basis of the Minister’s assessment to say “I didn’t claim expenses that I might have been entitled to.” If there were expenses associated with the income of the Appellant which he would be entitled to deduct, he had every right to claim those expenses when he filed his income tax return. But how could he be claiming any expenses against income when he never reported the income?

The end result is that this Court, as in the cases referred to, does accept that the Minister in this particular case used the best method available to determine the assessment and to determine the proper amount to be assessed against the Appellant by way of unreported income including tips.

The Court is satisfied that the Appellant did not produce any evidence whatsoever which would in any way rebut the presumptions in the Reply or rebut the basis of the Minister’s assessment.

Consequently the Court will have to find that the Appellant has not met the burden of proof upon him to establish that the Minister’s assessment was incorrect.

The appeal is dismissed and the Minister’s assessment is confirmed.

Appeal dismissed.