Jacques Delouvrier v. Minister of National Revenue, [1979] CTC 2896

Delmer E Taylor [TRANSLATION]:—This appeal was filed as a result of tax assessments in which the Minister of National Revenue included in the appellant’s income the following amounts of “additional income” for the years in question:

The Minister also added a penalty of 25% of the tax payable. The respondent relied, inter alia, on sections 3, 4 subsections 46(6) and 56(2) of the Income Tax Act (RSC 1952, c 148), and on section 3, subsections 9(1), 152(7) and 163(2) of the Income Tax Act (SC 1970-71-72, c 63), as amended, and on subsection 62(3) of the ITAR.

Facts

The appellant is a resident of the city of Montreal in the province of Quebec. He worked for several years (before 1971) as a concrete inspector.

Submissions

The relevant statements of the appellant in his notice of appeal are as follows:

—In January 1972, he purchased the assets of an unincorporated business which had previously belonged to Mr René Cambourieu. Under an illegal agreement made at that time between Cambourieu and himself, he was to be represented to all third parties as an employee of the business and Cambourieu was to be represented as the proprietor and was to make the business’s annual income tax returns.

— In July 1975, realizing that the returns in question had never been filed for the years 1972 to 1974 inclusive, he decided to submit a voluntary disclosure.

—An investigation was then carried out, in the course of which the Department of National Revenue authorities made a summary calculation of his net worth.

—Though he accepted it as a whole, it appears that two mistakes were made in this summary which significantly increased the assessment:

(a) Firstly, they refused to deduct from Delouvrier’s net worth a sum of $18,000 which had been borrowed by him from Mr Bruno Violand as follows:

$6,000 in March 1973;

$4,000 in January 1974;

$8,000 in June 1975.

The evidence of these loans was not accepted, and in making the assessments this amount of $18,000 was regarded as an addition to the net assets and consequently as unreported income, and was taxed in his hands.

(b) The second mistake is that the purchase of Cambourieu’s business did not take place until January 14, 1972, that is, after the end of the 1971 taxation year. He maintained that he always paid all his tax and reported all his income, except the amounts related to the business in question, known as the “Restaurant Le Chaînon Inc”. Since this restaurant was not purchased until the 1972 taxation year, he regarded the assessment for the year ending on December 31, 1971 as erroneous, since he reported all his income and paid all this tax at least up to that date.

— In view of the foregoing facts, he requested that the assessments imposed be amended as follows:

(a) that the taxable income for 1973 be reduced by $6,000;

(b) that the taxable income for 1974 be reduced by $4,000;

(c) that the taxable income for 1975 be reduced by $8,000;

(d) that the 1971 assessment be vacated.

For this part, the respondent stated the following:

—The appellant had been unable to show that these amounts, or parts of them, were not in the nature of additional taxable income for each of the years in question;

—The application of the penalty was justified and this penalty, of 25% of the tax payable, was correctly applied.

Exhibits

The appellant set forth his case and filed the following documents:

Exhibit A-1—A copy of the sale contract and agreement between René Cam- bourieu and Jacques and Delouvrier for the sale of the “La Chainon” restaurant situated at 1001, rue Saint-Denis in the city of Montreal, fora price of $50,000.

Exhibits A-2 and A-3 (under reserve)—Two statements by Bruno W Violand showing that he lent $18,000 to the appellant between March 10,1973 and June 10, 1975.

Subsequently, during cross-examination by counsel for the respondent, the appellant identified the financial statements of the Le Chaînon restaurant for 1972, 1973 and 1974. These were filed as Exhibit 1-1. Counsel also presented the Board with a letter from the Canadian Imperial Bank of Commerce which set out transactions on Account No 01-88867 in the name of Jacques Delouvrier for the year 1971. This letter was accepted by the Board as Exhibit I-2 (under reserve).

Miss Bélair also gave details of the assessments made by the net worth method:

Mr Jacques Delouvrier 4970 boul Montpetit no 4 Capital reconciliation

for the years ending December 31, 1974

	1971	1972 1972	1973 1973	1974 1974
Capital at December 31	$11,100.07	$22,822.53	$28,859.01	$36,301.90
Less:
Capital at January 1	5,900.00	11,100.07	22,822.53	28,859.01
Capital increase	$ 5,200.00 $11,722.46 $ 6,036.48 $ 7,422.89

	1971	1972 1972	1973 1973	1974 1974
Add:
Cost of living	3,843.27	3,843.00	3.898.00	3,898.00
Tax, QPP, Unemployment
Insurance		797.98	1,388.36	1,581.45
Total income on basis of
reconciliation	$9,043.34 $16,363.44 $11,322.84 $12,922.34
Deduct:
Reported income	628.64	4,414.70	6,735.00	7,841.92
Unreported income	$8,414.70 $11,948.74 $ 4,587.84 $ 5,080.42

Marcel Tremblay/1p

Section 41-1

Room 1047

Montreal, May 6, 1976.

Appendix A

Mr Jacques Delouvrier 4950 boul Montpetit no 4 Balance sheet at December 31

	1970	1971 1971	1972 1972	1973 1973	1974 1974
Assets	$	$	$	$	$
B M No 5985		698.50	537.45	2,552.98	812.0
B M No 5026072					2,661.9
CP CSN No 306			428.34	893.64	1,227.2
CIBC No 01-88867		12,620.28	317.68	136.06	1,522.8
BE p No 3846-7	1,110.00	981.29	710.48	111.03	501.5
Inventory			2,500.00	2,500.00	2,700.0
Equipment			3,200.00	2,560.00	2,048.0
Deferred finance
charges			3,553.19	1,701.00	422.0
Cottages	4,800.00	4,800.00	4,800.00	4,800.00	4,800.0
Goodwill			40,650.00	38,417.00	36,587.0
Total assets	$5,900.00 $19,100.07 $56,697.14 $53,671.71 $53,302.6
Liabilities
Accounts payable			$ 600.61 $ 645.00 $ 1,012.0
Due to Cambourieu			26,100.00	16,450.00	8.200.0
Cheques outstanding			250.00	793.70	864.7
Due to Miss Dorais		8,000.00	6,924.00	6,924.00	6,924.0
Total liabilities		$ 8,000.00 $33,874.61 $24,812.70 $17,000.0
Capital	$5,900.00 $11,100.07 $22,822.53 $28,859.01 $36,301.9

Marcel Tremblay/1p

Room 1047

Section 41-1

Montreal, May 6, 1976.

Appendix B

Pleadings

Counsel for the appellant requested that the Board regard as “evidence” the statements by Mr Violand (Exhibits A-2 and A-3) and that it accept the credibility of the appellant’s evidence. He referred it to two judgments in support of his submissions relating to credibility. John (Giovanni) Bianchin v MNR, 15 Tax ABC 208; 56 DTC 315, and Jacob Sawatsky v MNR, [1968] Tax ABC 1082; 68 DTC 783.

In short, he said:

(TRANSLATION)

In fact, it is mainly a question of credibility on the basis of the evidence, and I submit that in every respect the evidence which was available to Mr Delouvrier has been produced; he presented his own version and I believe that it will be for the Board quite simply to assess his credibility in light of the facts set out in his application for review.

Counsel for the respondent stated that the appellant had produced very little relevant information; as for the matter of credibility, he disagreed with Mr Gagnon, expressing his opinion as follows:

(TRANSLATION)

. . . I agree with my colleague on one point: that this is a question of the credibility of the witnesses who have been heard on one hand, and of corroboration either by other witnesses relating to the same facts, or by documentary evidence. The Board will now have to assess the credibility of a single witness in a transaction which involves two parties, that is, in the case of Mr Delouvrier, who was at that time the borrower, and Mr Violand, who was the lender.

Conclusion

The Board accepts only Exhibits A-1 and 1-1 as evidence in this appeal. The appellant had the financial statements (Exhibit 1-1) prepared at the time of his voluntary disclosure and I therefore assume that all the information in them must be to his advantage. They show that (as owner) he paid the following additional amounts after the purchase of the business:

The appellant stated in his evidence that he had borrowed the amount of $9,000 separately in 1971 “to make a down payment for the business”. It is, therefore, possible to accept that he did not have sufficient additional funds after the purchase of the restaurant. To explain the source of the additional payments, he simply stated that he borrowed $10,000 from Mr Violand during the same years: 1972—nil; 1973—$6,000; 1974—$4,000. In my view, in order to be satisfied that the appellant has discharged the burden of proof and accept the credibility of his evidence, the Board would need to have at least some information relating to the source of the balance of these additional payments ($28,768.40); but we have none. I also note that the appellant appears to have accepted the 1972 assessment, which includes an amount of $11,948.74 as “additional income”, and the Department’s documentation for 1973 and 1974 is based on the same principle as that for 1972.

The Board has received absolutely no documentation from the appellant relating to 1971 (bank accounts, loans or other items).

The 1975 taxation year is not before the Board.

Decision

The appeal is dismissed.

Appeal dismissed.