Her Majesty the Queen v. Kalvan Gill, [1990] 2 CTC 318

Oliver, J.:—Kalvan Gill was charged with 13 counts under the Income Tax Act, R.S.C. 1952, c. 148 (as amended), the "Act". Count 1 reads as follows:

Count 1

Kalvan Gill of 8054 Sykes Street, Mission, British Columbia, on or about March 12, 1987, unlawfully failed to provide a signed statement of assets and liabilities as at December 31, 1979, as required pursuant to the provisions of paragraph 231.2(1)(a) of the Income Tax Act, and did thereby commit an offence contrary to the provisions of subsection 238(2) of the said Act:

Counts 2 to 5 are identical except that they refer to the required statements of assets and liabilities as at 1982, 1983, 1984 and 1985 respectively.

Count 6 reads as follows:

Count 6:

Kalvan Gill, Director of Janbar Enterprises Ltd, of 8054 Sykes Street, Mission, British Columbia, on or about March 12, 1987, unlawfully failed to provide the signed Income Tax Return of Janbar Enterprises Ltd. on Form T2 for the taxation year ended February 28, 1984, as required pursuant to the provisions of paragraph 231.2(1)(a) of the Income Tax Act, and did thereby commit an offence contrary to the provisions of subsection 238(2) of the said Act.

Counts 7 to 13 are identical to count 6 except that they refer respectively to the following companies and taxation year ends:

Count 7: Janbar Enterprises Ltd. —February 28th 1985

Count 8: Janbar Enterprises Ltd. —February 28th 1986

Count 9: Janbar Cedar Products Ltd.—calendar year 1984

Count 10: Janbar Cedar Products Ltd.—calendar year 1985

Count 11: Mission Truck Parts & Equipment Ltd.—March 12, 1987

Count 12: Mission Truck Parts & Equipment Ltd.—calendar year 1984

Count 13: Mission Truck Parts & Equipment Ltd.—calendar year 1985

At trial Mr. Gill was acquitted on counts 7, 8, 12 and 13 and convicted on counts 1, 2, 3, 4, 5, 6, 9, 10 and 11.

The Crown now appeals the four acquittals and Mr. Gill appeals the nine convictions.

A Summary of Facts

Kalvan Gill was at one time a director and indeed the “de facto guiding hand" of each company. Janbar Enterprises Ltd. was registered on November 10, 1971 but was struck off the Register and dissolved by the B.C. Registrar of Companies pursuant to section 281 of the Company Act on October 21, 1983. The company was restored to the Register pursuant to section 286 on October 11, 1988. Janbar Cedar Products Ltd. was incorporated in November 1971 and was struck off and dissolved by the Registrar on December 5, 1986. Mission Truck Parts & Equipment Ltd. was incorporated August 18, 1966 and struck off and dissolved by the Registrar on February 23, 1983.

On December 10, 1986 notices on behalf of the Minister of National Revenue were served on Mr. Gill pursuant to paragraph 231.2(1)(a) of the Income Tax Act requiring that he provide certain signed statements of his personal assets and liabilities. Kalvan Gill failed to comply with any of these letters of demand and his failure constitutes the basis of counts 1-5. The remaining demands were for "the signed income tax returns" of the three companies for various taxation years: His failure to comply with these demands forms the basis of counts 6-13.

Crown Appeal from Acquittals

Grounds:

(1) THAT the learned trial Judge erred in holding that the Respondent was not obliged at law to file Income Tax Returns for the Corporations of which he was a director during the time that the Corporations were struck from the Provincial Register and dissolved.

(2) THAT the learned trial Judge erred in failing to hold that subsection 286(2) of the Company Act, R.S.B.C., c. 59, applied to the facts herein and that Janbar Enterprises Ltd., of which the Respondent was a Director, was deemed to have continued in existence even though this Corporation had previously been struck from the Provincial Register and dissolved.

A limited liability company is a legal person and like a human person lives from birth to the moment of death. It is a creature of statute. It is born on incorporation: It dies upon dissolution. Each of the three companies following its death by dissolution was in the words of the learned trial judge "nonexistent" it was incapable once dissolved of operating, earning income, incurring losses, performing any act or having a “taxation year".

As the learned trial judge so properly put it: "the company, being nonexistent . . ., could not in good sense or law be required to file T2 forms".

The Crown argues that since Janbar Enterprises Ltd. was on October 11, 1988 restored to the Register, Mr. Gill was under a duty to comply with the Minister's

demand. The Crown relies on subsection 286(2), of the Company Act: "where a company . . . is restored to the Register under subsection (1) the company shall be deemed to have continued in existence, . . . and proceedings may be taken as might have been taken if the company had not been dissolved . . .”.

I do not find it necessary to decide what would have been the legal effect of this section this [sic] if the Minister’s demand had followed the restoration to the Register of the company: In the present case the demand made by the Minister preceded restoration of the company to the Register by some two years. In my judgment, although the legislature by this section has conferred upon the Registrar the power in appropriate cases to resurrect a deceased and dissolved company, it would be totally wrong to interpret this section as having the intent or effect of retroactively creating criminal liability arising from the failure of a deceased company to act from its grave (or the failure of a third party to act on its behalf).

The Crown also relies on section 284 of the Company Act of British Columbia, which provides that

284. The liability of every director, officer, liquidator and member of a company that is struck off the Register or of an extraprovincial company that has had its registration cancelled, pursuant to section 281, 283 or 344 shall continue and may be enforced as if the company had not been struck off the Register or the registration of the extraprovincial company had not been cancelled.

In my judgment the “liability” to which this section refers means any liability which as a matter of law was in existence immediately prior to the moment of dissolution. If a ministerial demand pursuant to section 231.2 of the Income Tax Act can be said to create a liability on the part of the person to whom it was addressed to do certain things in response, such liability arises only at the time of the demand.

The cases of Montreal Trust Company v. Boy Scouts of Canada (1978), 5 W.W.R. 123; 88 D.L.R. (3d) 99, Computerized Meetings and Hotel Systems Ltd. v. Moore (1982), O.R. (20) 708 and Tymans Ltd. v. Craven [1952], 1 All E.R. 613 relied upon by the Crown are all distinguishable either on their facts or because of dissimilarities between the statutes which they interpret and those involved in the present case.

I would accordingly dismiss this appeal.

Appeal of Kalvan Gill from Conviction (Counts 1, 2, 3, 4, 5, 6, 9, 10 and 11)

Grounds:

(a) THAT with respect to all Counts the convictions are against the weight of the evidence;

(b) THAT the learned trial Judge erred in finding that there was sufficient evidence that subject demand letters under paragraph 231.2(1)(a) of the Income Tax Act were made pursuant to a reasonable, or serious or genuine inquiry under the Income Tax Act;

(c) THAT the learned trial Judge erred in finding that on the evidence there was a reasonable time within which to comply with the subject demand letters;

(d) THAT the learned trial Judge erred in finding that the fourteen month period between December 10, 1986 and February 26, 1986 [sic] was more than a reasonable time to comply with the demands of the Minister in that the said demand letters only gave ninety days within which to comply with the subject requirements;

(e) THAT the learned trial Judge erred in finding that financial difficulty was not an excuse for failure to comply with the subject demand letters;

(f) THAT the learned trial Judge erred in failing to find that with respect to the demand letters pertaining to the corporations named in the aforesaid Counts the Defendant was under no legal obligation to comply with the said demand letters because as at the date of service of those letters all three companies had been struck from the Register of Companies.

(g) THAT the learned trial Judge failed to properly apply subsection 231.5(2) of the Income Tax Act and thereby acquitted the Appellant on the basis that he was unable to comply with the said demand letters;

(h) THAT the learned trial Judge failed to properly consider section 236 of the Income Tax Act and thereby find that there was no “duly authorized” person to sign the aforesaid corporate income tax returns;

(i) THAT the learned trial Judge erred in failing to acquit the Appellant on all of the charges pertaining to the corporate tax returns on the basis that there was no evidence that he was, at the time of service of the said demand letters a director of any of these companies;

(j) THAT the learned trial Judge erred in failing to properly consider section 281(4) of the B.C. Company Act and thereby acquitted the Appellant with respect to all of the Counts pertaining to the aforesaid companies.

As to ground (b) I am satisfied that the learned trial judge had before him sufficient evidence that the demands were made pursuant to a reasonable or serious or genuine inquiry under the Income Tax Act. As to ground (c) I find that the learned trial judge was not in error. As to ground (d) I find that there was nothing unreasonable about the 90-day time limit set out in the demand letters and that the appellant Gill could within that period of time with the exercise of reasonable diligence have produced a statement of assets and liabilities on his own behalf, sufficient to satisfy the Minister. I have noted the evidence of Mr. Leonard McIntosh, C.A. for the defence to the effect that the books of the various companies at the time the demands were served were in a mess and would have required four to six months of professional work at a cost of between $25,000-$40,000 to "do a proper full return situation”. That, in my view, does not constitute a valid defence to any of the charges: The operator of any business (whether an individual or a limited company) is under a duty to maintain such proper books of account and financial records as to enable that person to comply with his or its statutory reporting duties to the revenue authorities: If a taxpayer fails regularly to maintain its records, and allows them to get into such a state that his or its income tax obligations can only be fulfilled through a lengthy and costly investigation, which the taxpayer may have difficulty in affording, the taxpayer does so at his peril. Moreover the evidence given at trial by Mr. McIntosh in cross-examination by appellant's counsel makes it clear that Mr. Gill was less than diligent in co-operating with his accountant in preparation of the records which were being demanded. For all these reasons, I am satisfied that the learned trial judge did not err in convicting Mr. Gill on counts 1, 2, 3, 4 and 5 (the "personal counts").

As to the remaining counts, I repeat what I have already said in my reasons for judgment in the Crown appeal in this case.

I next refer to section 231.2 of the Act:

Notwithstanding any other provision of this Act, the Minister may subject to subsection (2) for any purpose related to the administration or enforcement of this Act, by notice served personally or by registered or certified mail, require that any person provide within such reasonable time as is stipulated in the notice,

(a) any information or additional information, including a return of income or a supplementary return; or

(b) any document

Whilst it is clear that the words "any information or additional information" in subsection (a) and the words "any document" in subsection (b) can relate either to the person served or to a third party, I am in considerable doubt as to the meaning of the words “including a return of income or a supplementary return”: It seems to me probable that those words were intended to relate only to a return of income or a supplementary return by the taxpayer to whom the demand is addressed: I am supported in that view by the judgment of Girgulis, J. of the Court of Queen's Bench in Alberta in R. v. Mark Owen Dakus (unreported), Alta. Q.B., Girgulis J., July 6, 1988 which is reproduced under Tab 5 of the Crown's case book when he says at page 9:

It is significant that in the Bank of Commerce case(Canadian Bank of Commerce v. Attorney General of Canada (1962) S.C.R. 729) the person of whom the information was requested was not the person whose tax liability was in issue. Surely, it is obvious that a request for a tax return is a request for information concerning income and deductions and relates directly to the tax liability of the recipient of the demand.

[Emphasis added.]

In the circumstances, this issue not having been fully argued before me, I do not find it necessary to decide it.

I draw attention to the specific wording of counts 6, 9, 10 and 11 (as well as to the wording of those counts with which I have already dealt with in the Crown's appeal): Each allege that Kalvan Gill, Director of . . . Ltd. unlawfully failed to provide "the signed income tax return of. . . Ltd. on Form T2 . . . as required pursuant to the provisions of Paragraph 231.1(2)(a) of the Income Tax Act”. The Crown argued at trial that, although the defendant was charged as director of each company, that was no more an essential element of the offence than his address would have been. In that argument, the Crown was successful and I will accordingly ignore that element of each charge.

A problem arises from the use of the words "provide the signed income tax return of . . . Ltd.". Section 236 of the Income Tax Act provides as follows:

A return, certificate or other document made by a corporation pursuant to this Act or a regulation shall be signed on its behalf by the president, secretary, treasurer of the corporation or by any other officer or person thereunto duly authorized by the Board of Directors or other governing body of the corporation.

Inasmuch as the demand letters in each case call for the signed income tax return of the corporation, it is clear that those returns must be executed in strict accordance with the provisions of section 236. A dissolved corporation is a dead corporation and with it died its officers and directors. There appears to be no evidence that Mr. Gill was at any time an officer of any of the corporations, although he was a director. There was accordingly at the time of demand, no officer in existence capable in law of signing a return, nor was there a board of directors capable in law of authorizing any other person to sign a return on behalf of the defunct corporation. It should be noted that a director as such is neither an officer of the company nor a person who is a designated signatory pursuant to section 236.

The learned trial judge in attempting to determine the guilt or innocence of Kalvan Gill appears to have directed his mind almost entirely to the following question:

Was Kalvan Gill a director of the dissolved corporation at any time when that company was an existing legal entity? If so, the trial judge reasons, he can be compelled—even though the company may have long been dissolved—to "provide the signed income tax return of (the company)" pursuant to paragraph 231.2(1)(a) of the Income Tax Act and if he fails he is thereby guilty of an offence contrary to subsection 238(2) of the said Act. Subsection 231.5(2) provide as follows:

231.5(2) Compliance. No person shall hinder, molest or interfere with any person doing anything that he is authorized by or pursuant to subsection (1) or sections 231.1 to 231.4 to do or prevent or attempt to prevent any person doing any such thing and, notwithstanding any other Act or law, every person shall, unless he is unable to do so, do everything he is required to do by or pursuant to subsection (1) or sections 231.1 to 231.4.

I find that as far as each of the demands relating to corporate tax returns is involved, the appellant Kalvan Gill was at all material times “unable to do so" within the meaning of subsection 231.5(2). Not because time and a shortage of money prevented the preparation of income tax returns, but because as a matter of law for the reasons set out above he was incapable of complying with the demands. I accordingly find that the learned trial judge erred in applying the wrong yardstick in convicting on counts 6, 9, 10 and 11.

Judgment

1. The Crown appeal from the acquittals on counts 7, 8, 12 and 13 is dismissed.

2. The appeal of Kalvan Gill from his convictions on counts 1, 2, 3, 4 and 5 is dismissed.

3. The appeal of Kalvan Gill from his convictions on counts 6, 9, 10 and 11 is allowed and the convictions are quashed.

I add the following comment: It was argued by counsel for the Crown at trial and again on appeal that if the defence argument that a demand under paragraph 231.2(1)(a) of the Income Tax Act is ineffective if the company is struck from the Register of Companies and is dissolved, should prevail, then any company could have itself struck in order to avoid filing an income tax return. If there were any ground for counsel's fears, the proper remedy would surely lie in a simple amendment to the Income Tax Act. In the present case, counsel's concern is unfounded since the Minister could very easily have obtained all the information he required by a properly worded demand or by other obvious remedies available under the Act.

Crown's appeal dismissed; taxpayer's appeal allowed in part.