Edward Djoboulian v. Minister of National Revenue, [1979] CTC 2074, 79 DTC 87

The Chairman:—This is the appeal of Edward Djoboulian from income tax assessments dated April 8, 1975, in respect of the appellant’s 1968, 1969, 1970, 1971, 1972 and 1973 taxation years. This appeal was heard on common evidence with that of Siranouche Karadjian from assessments dated December 16, 1974; with that of Haig Djoboulian from assessments dated February 28, 1975; and with that of Gerard Djoboulian from assessments dated November 29, 1974.

By notices of assessment the Minister of National Revenue added to the appellant’s income the following amounts:

$13,097.84 for the 1968 taxation year

$13,752.73 for the 1969 taxation year

$16,185.19 for the 1970 taxation year

$15,717.41 for the 1971 taxation year

$17,682.08 for the 1972 taxation year

$17,120.75 for the 1973 taxation year.

These adjustments in the appellant’s income were made as a result of a net worth method of assessing. The appellant objected to the assumptions made by the Minister in arriving at his net worth figure and appealed from the assessments.

The appellant contends that the assessments for the taxation years 1968 and 1969 were not made within the period of four years from the date of the original notice of assessment pursuant to subsection 152(4) of the Income Tax Act, SC 1970-71-72, c 63 as amended, and therefore statute-barred. Before going on to the appellant’s other contentions and for the sake of clarity I propose to deal immediately with this contention.

The Minister, in the absence of reliable records, was justified in assessing the appellant by way of net worth assessments. As a result of the reassessment, adjustments were found to be necessary on the basis of the Minister’s assumptions, the appellant’s net income and the tax payable for the pertinent taxation years had presumably been misrepresented by the appellant. This gave the Minister the right to assess the appellant beyond the four-year period pursuant to subsection 46(4) of the Income Tax Act, RSC 1952, c 148 as amended. For his appeal to be successful, the appellant must show that the Minister’s assumptions were wrong and that his income for the pertinent years had not in fact been misrepresented.

I do not propose here to deal with the manner in which the appellant drafted his notice of objection or the respondent’s complaint of the appellant’s attitude. I feel that I will have carried out my full responsibilities in this appeal by simply determining whether or not the appellant was properly assessed.

Appellant’s Contention:

The appellant’s principal contention is that the amount of $93,556 which was added to his income for the years 1968 to 1973 as a result of a net worth assessment was based on erroneous calculations and was unfounded. The appellant alleges that:

(a) The Minister’s estimate that his capital was in the amount of $104,591.22 as at December 31, 1967 was overstated.

(b) His estimated capital of $193,355.37 as at December 31, 1973 was also overstated.

(c) His liabilities estimated to have been zero as at December 31, 1973, was understated.

(d) The estimate of his personal living expenses for the period of 1968-1973 at $31,484.35 was overstated.

(e) The Minister’s evaluation of his parking lot at $244,800 was not correct.

(f) The Minister’s calculations of gross rental income during the years 1968 to 1973 in the amount of $346,464 was incorrect.

(g) The Minister did not take into account 13 capital payments which were received by the appellant from various agents and which represented part of the proceeds from the sale of business assets which the appellant owned in Egypt prior to emigrating to Canada.

The Respondent’s Submissions:

The respondent denied the appellant’s allegations and submits that the assessments were based on the following assumptions of facts:

(a) That the appellant and his children owned and operated a parking lot in Montreal in the pertinent taxation years.

(b) That by a net worth assessment based on the facts and documents submitted and recorded in the various schedules the respondent established the appellant’s true income.

(c) That the onus of establishing that the Minister’s net worth assessment is wrong lies with the appellant.

The Facts:

The facts, from the evidence adduced, can be summarized as follows: The appellant was born in Armenia in 1910 but was raised in Egypt after his parents were killed during the First World War. The appellant established various stores in and around Ismailia in the Suez Canal which was at that time controlled by English military forces. In the mid-1950’s Col Nasser replaced King Farouk and the appellant was no longer permitted to operate his business in Ismailia. The appellant alleges that he nevertheless disposed of his business but with a substantial loss. In 1955 the appellant managed to leave Egypt allegedly with a considerable amount of money. Owing to the restrictions imposed on the exportation of money from Egypt the appellant had to resort to various means of getting the balance of his capital out of that country and a great deal of evidence was adduced to explain how that was done which operated for several years.

On the basis of the evidence adduced I am satisfied that the appellant was forced to abandon a profitable business in Egypt and that he managed to bring with him to Canada a sizeable amount of money. The exact amount which the appellant brought with him to Canada with which he presumably established his new business is unknown, as is the income which his parking lot business generated in the pertinent taxation years because the appellant kept no records of either his original capital or his subsequent income.

Finding of Facts:

Although one may sympathize with the appellant’s state of mind after his experience in Egypt, it is difficult to understand that a successful businessman, which the appellant alleges he was, kept no record whatever of his starting capital, his business income or the amounts of capital receipts he claims to have received from Egypt over a period of several years. The appellant produced no bank deposit slips of monies allegedly brought with him on arrival in Canada, or of the capital receipts from abroad and there were no records of the income earned by him from the parking lot.

Very little weight can be given to the testimony of Mr Randolph, a chartered accountant, and a regular client in the appellant’s parking lot. Mr Randolph based the projected stated earnings from the parking lot largely on his observation of what he saw as being the activity of the business when he parked his car there. I do not question Mr Randolph’s good intentions but the basis on which he calculated the appellant’s projected earnings cannot be accepted as being a realistic approach to the appellant’s true income from the parking lot.

The Board in this appeal is placed in the impossible position of having to decide whether the Minister, by way of a net worth method, correctly assessed the appellant when there is little or no supporting evidence as to the amounts the appellant claims are involved.

Evidence was adduced to establish that several persons were used to bring the balance of the appellant’s capital assets from Egypt to Canada. The Board cannot ignore affidavits to that effect which were confirmed by the direct testimony of the persons who brought money to the appellant from Egypt. The Board, therefore, is prepared to accept that these persons did transfer certain monies directly or indirectly from Egypt to the appellant in Montreal. However, the Board considers that only the capital amounts received by the appellant from Egypt between the date of the opening balance when the appellant’s financial situation could be verified and the date of the closing balance can correctly be included in the net worth calculations.

I accept as facts that the appellant received from Egypt the following amounts:

$18,000 through the intermediary of Mrs H Amrikian in 1968 $12,000 through the intermediary of Mrs H Amrikian in 1969 $22,000 through the intermediary of Mrs H Amrikian in 1971 $12,000 through the intermediary of Mr Meras in 1972

$10,000 through the intermediary of Mr Moussayan

The total of $74,000 should, therefore, be included in calculating the appellant’s net worth.

The respondent denied that these monies were owing to the appellant as the sale price of the appellant’s business. Although the document which was submitted to substantiate the sale of the appellant’s business in 1950 was poorly translated, I accept, on the basis of the evidence, that the appellant owned a business in Egypt, that he was forced to dispose of his business and that the balance of the sale price was brought to him from Egypt after he had settled in Montreal. In the circumstances the Minister was justified in assessing the appellant on the net worth method. However, in my opinion, the appellant did not substantiate any other allegation made in his notice of appeal and he did not establish that the amounts used by the Minister (other than the capital receipts) in arriving at a net worth figure were wrong.

Decision

The appeal is, therefore, allowed in part and the matter referred back to the respondent for reassessment on the basis that the capital receipts in the amount of $74,000 should be considered in calculating the appellant’s net worth as at December 31, 1973 and in arriving at an estimate of the appellant’s income in respect of the taxation years 1968 to 1973 inclusive. In all other respects the appeal is dismissed.

Appeal allowed in part.