James Pollock Campbell (An Officer of the Department of National Revenue) v. Arnold L. Jaques, [1959] CTC 437, [1960] DTC 1039

GROSCH, J.:—F our separate informations were laid against the respondent Jaques for alleged violation of the provisions of Section 120(1) (a) of the Income Tax Act, reading as follows:

“ (1) Every person who has

(a) made, participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as requested by or under this Act or a regulation, .. . .

is guilty of an offence, and in addition to any penalty otherwise provided, is liable on summary conviction to

(i) a fine of not less than $25.00 and not exceeding $10,000.00 . . .’’

The learned Magistrate dismissed all four informations, and on appeal we now have a trial de novo not based on the evidence heard by the Magistrate, but on much more extensive and direct evidence of numerous witnesses not called at the first hearing. Naturally in such proceedings each side endeavours to fortify, shall I say, any apparent weaknesses as previously disclosed, and to bring home certain points commented upon in the lower court.

By agreement and consent this trial de novo embraces all four charges tried together.

It was admitted that with reference to the T.l income tax returns for the years 1949, 1950, 1951 and 1952 which are in issue, they were invariably filed within the stipulated time limits, but the sufficiency and accuracy of same is denied. With refer- ence to each year’s returns the certificate incorporated in same reads as follows:

“I hereby certify that the information given in this return and in any documents attached is true, correct and complete in every respect and fully discloses my income from all sources. ’ ’

Invariably these returns were signed personally by the respondent Arthur L. Jaques who was the sole proprietor of the Chatham branch of Canadian Tire Corporation which organization has associate stores in many other centres in this Province, and there seems to have been an arrangement whereby one such store supplies another with any items in short supply and makes settlement later by cheque or otherwise. The respondent’s business expanded rapidly, but his single entry system of bookkeeping patterned after that of an accountant in Windsor did not keep pace with the business expansion, and Jaques was his own bookkeeper during the period of these returns with little previous actual bookkeeping experience, but with a good fundamental education and extensive experience in salesmanship. He retained the services of one McCracken, a public accountant, and instructed him to prepare annual returns.

Much first hand evidence was adduced by various officials of the Department who were strenuously cross-examined, and in addition the respondent gave frank evidence as to what transpired and called several accountants including his present auditor Chrysler, whose evidence I deem very important.

Without reviewing such evidence in any detail, I find that unquestionably the individual returns for each of the four years did have substantial and manifest errors which could only be explained by additional information which I find had not been supplied fully to the said McCracken, nor not even originally to Chrysler who detected a lack of balance in the records and who was later informed by Jaques that the transactions with the associate stores, three or four in number, were not included and that the sales of used batteries were in a similar category. The records covering some of these items were destroyed after adjustments were made, but the other associate stores were able to and did supply cheques and invoices covering same from which a substantial discrepancy in the figures in the returns becomes evident. With the single entry system it is most difficult, if not impossible, to detect some mistakes as there is no proper method of balancing and checking for such a large business. Later Chrysler set up a double entry system for the respondent after he was informed by Jaques without hesitation upon ques- tioning him after inspection that the sales from other stores were not recorded, and mention was also made of the sales of scrap batteries of which no record was kept, but the proceeds were allegedly deposited in the current bank account.

Exhaustive inquiries were made by the Department’s officials, and after the bank balances were checked they made a survey and found that Jaques was selling to other associate stores in the general area and upon examining their records they found that these stores were paying by cheque to Jaques but the transactions were not shown as sales although the proceeds were deposited in the bank with no notation on the deposit slips. Naturally this affected the total of sales return. The explanation of Jaques is that his employees were on a percentage of sales basis and since he made no profit on these sales to the associate stores he felt his employees should not participate in these transactions and they were not included as sales. This admission on Jaques’ part is evidence that he knew and realized that the returns made were not as certified correct and complete in every respect and did not fully disclose his income from all sources.

After lengthy and prolonged negotiations with the specialists of the Department, Jaques issued two cheques, one dated January 19, 1954 for $7,420.50 and the other dated March 15, 1955 for $12,521.87 totalling $19,942.37, said to be in full of his tax liability plus interest for the years 1949 to 1952 inclusive, these being the years in question, the receipts covering same being filed as Exhibit #20. As stated at the trial, this Court is not required to find the exact amount of any errors or discrepancies, but is to determine whether or not there were breaches of the regulations as charged.

Exhaustive and exceptionally well prepared written arguments were filed by both counsel. For the appellant it was contended that there definitely was evidence warranting a conviction under Section 120(1) (a) and that to register such a conviction it is not necessary to prove mens rea or wilful deception or conduct in the returns filed. Furthermore it was contended that the evidence adduced and the respondent’s conduct did show a wilful course of action on his part.

For the respondent it was strongly contended that to obtain a conviction the appellant must prove mens rea and that the wording of subsection (1)(d) of the said Section 120 in which the word “wilfully” is used, applies equally to prosecutions under subsection (1)(a), the wording of the said subsection (1)(d) being as follows:

“(1) Every person who has

(d) wilfully, in any manner evaded or attempted to evade, compliance with this Act or payment of taxes imposed by this Act,’’

Credit must be given to the respondent for co-operating with the officials. He may have relied altogether too much, and unjustifiably, on the ability of McCracken who was retained to make the returns and who apparently was not too thorough or accurate in so doing, but who says that Jaques did not inform him of the facts as to the sales made to associate stores and that he knew Jaques made sales to other stores but thought they were recorded and was not told otherwise. He did not know of the scrap battery sales, nor that they were not recorded.

If Jaques is correct as to giving full information and records to McCracken, which the latter denies, then why did Jaques after the Departmental investigation had commenced not inform his present auditor Chrysler of the facts until after Chrysler had taken about one week to endeavour unsuccessfully to balance the statements and books with the records, and why did he only then volunteer, without hesitation, as Chrysler put it, that the sales from other stores were not recorded, mentioning also the scrap battery sales? I find that Jaques did not fully inform McCracken of the exact facts.

In my opinion separate informations could have been laid under each or any of the four subsections of Section 120, (a) to (d). The Department saw fit to prosecute under subsection (1) (a) which makes no reference whatever to any wilful conduct, nor do I consider it necessary that mens rea be established as a factor or ingredient. The subsections are separate and independent and the matter of wilful conduct does not include an information under subsection (1) (a). Even if such were not the case then I feel that there was evidence of mens rea and wilful misconduct, but I am prepared to give the respondent the benefit of any reasonable doubt and accordingly do not so find.

On this evidence and under these circumstances I allow the appeal on all counts and find the respondent guilty in each ease. The fine under the circumstances in view of the co-operation shown by the respondent and his subsequent payment of such a large amount of money will be $100 and costs fixed at $50 in each case, that is a total of $600 in fines and costs.

Appeal allowed.