Date: 19980420
Docket: 97-2388(IT)I
BETWEEN:
HAMID REZA TABATABAI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
_____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Vancouver, British Columbia, on February 26,
1998)
MARGESON, J.T.C.C.
[1] 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.
[2] 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.
[3] 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 50/50 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.
[4] 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.
[5] 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.
[6] The case of Hossein
Farahani, T.C.C. No.96-4047(IT)I 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.
[7] 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.
[8] 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.
[9] 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.
[10] 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.
[11] 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.
[12] 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.
[13] 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.
[14] 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.
[15] 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.
[16] 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.
[17] Mr. Marquis indicated that the
tips rate or the percentage was fair, taking into account all of
these contingencies.
[18] Counsel referred to
Cécile Cliche-Paquet v. The Minister of National
Revenue, 80 DTC 1282, 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 Larry Munn v. Her Majesty The
Queen, 95 DTC 214, 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.
[19] 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.
[20] Bonner, T.C.C.J., further said in
Munn, supra, that in respect to the year in question
"...I find that there is no reliable evidence on which it can
be found that the appellant's income is less than assessed."
[21] 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.
[22] 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.
[23] Counsel also referred to the case
of 421229 Ontario Limited et al., v. Her Majesty
The Queen, 95 DTC 5087 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.
[24] Counsel for the Respondent argued
that the appeal should be dismissed.
[25] 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.
[26] 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.
[27] 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.
[28] Now, in a case of this nature, it
is not an answer to the reassessment, nor a refutal 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?
[29] 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.
[30] 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.
[31] 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.
[32] The appeal is dismissed and the
Minister's assessment is confirmed.
Signed at Ottawa, Canada, this 20th day of April 1998.
J.T.C.C.
Email this Content