Chicken Tandoor Limited and Manohar Lal Ahir v. Minister of National Revenue, [1987] 2 CTC 2171, 87 DTC 487

Taylor, T.C.J.:—These are appeals heard on common evidence, in Halifax, Nova Scotia, on May 28, 1987, against income tax assessments based upon income allegedly unreported by the taxpayers. Essentially the Minister had performed a “net worth" assessment on Mr. Ahir — as an individual — and reassessed that taxpayer for these discrepancies, and the only source of income for Mr. Ahir known to the Minister was from “Chicken Tandoor Limited”, which operated a restaurant. Accordingly the Minister then reassessed the company Chicken Tandoor Limited for undisclosed income also. The notice of appeal for Mr. Ahir sets out the general area of the dispute:

1. In January 1982 the Appellant's income tax liability for his 1977, 1978, 1979, 1980 and 1981 taxation years was assessed by Revenue Canada on a net worth basis and a jeopardy assessment for income tax in the approximate amount of $40,000 was raised and within a few days sufficient assets were seized by Revenue Canada to satisfy the assessment.

2. The Appellant for two years attempted without success to point out to Revenue Canada the errors in the assessment. In November 1984 the Department of National Revenue laid charges against the accused and a company Chicken Tandoor Limited. The Appellant was convicted with respect to less than half of the original assessment and the decision of the trial judge was upheld on the appeal despite numerous clear errors found in the trial judge's decision.

3. The Department of National Revenue has maintained its original position with respect to the assessment in the presence of inter alia the following facts:

(a) The Appellant was in possession of money belonging to a friend, Hukam Chand, in the amount of approximately $47,000.

(b) The Appellant, during most of the period covered by the assessment was an employee of the company and had no control over the finances of the company until May 1981.

(c) The Chicken Tandoor Limited is a very small restaurant and incapable of generating the amount of cash allegedly received by the Appellant.

(d) The Appellant during the period was credited with shares of the company for which he paid nothing and he received no share certificates until May 1981.

In reply thereto the Minister contended:

— . . . the Appellant was assessed on a net worth basis with respect to the 1977, 1978, 1979, 1980 and 1981 taxation years; that he was prosecuted and convicted for income tax evasion . . .

— . . . the Respondent. . . reassessed . . . by including unreported income in the following amounts:

1977 — $ 8,265.16

1978 — 18,566.82

1979 - 21,850.72

1980 - 7,593.48

1981 - 29,295.59

— At all material times, the Appellant was a shareholder in Chicken Tandoor Limited;

— The Appellant and Chicken Tandoor Limited kept poor and inadequate records which were insufficient for the proper determination of income;

— In making the reassessments, the Respondent computed the income of the Appellant on the "net worth" basis following generally-accepted procedures, relying upon such records as were available and giving due comsideration to all the surrounding circumstances so as not to arrive at an arbitrary result;

— In making the reassessments using the net worth method, the Respondent calculated the net worth of the Appellant (the balance of assets less liabilities) at the beginning and end of each taxation year;

— The increase in the net worth of the Appellant in each taxation year was added to the amounts expended as personal or living expenses and their sum represents the income of the Appellant for each taxation year;

— The Respondent prepared a schedule of the Appellant's net worth which is attached hereto as Schedule "A"* and a schedule of the Appellant's personal living expenses, attached hereto as Schedule "B"*; [1]

— The "Apparent Discrepancy” referred to in Schedule "A" in 1977, 1978, 1979, 1980 and 1981 does not represent in whole or in part money received from the Appellant's friend, Hukam Chand, but were amounts of unreported sales of Chicken Tandoor Limited appropriated by or for the benefit of the Appellant.

— The Respondent relied, inter alia, upon sections 3, 4,5, 6, 9,15,152(7) and 248(1) of the Income Tax Act, R.S.C. 1952, c. 148 as amended by S.C. 1970-71-72, c. 63, section 1.

— The Respondent submits that, by using reliable and accurate information, he calculated the income of the Appellant for his 1977, 1978, 1979, 1980 and 1981 taxation years pursuant to section 152(7) of the Income Tax Act and that the amounts added to his income were amounts appropriated by or to the benefit of the Appellant from Chicken Tandoor Limited and not previously reported.

APPENDIX II
		SCHEDULE “B”
	MANOHAR LAL AHIR
Statement of Personal Living Expenses
For the Years Ending Dec. 31
		1977	1978		1979		1980	1981
Food	$	500.00	$	500.00	$	500.00	$1,000.00	$1,000.00
Clothing		200.00	200.00			200.00	220.00	240.00
Life Insurance		0		0		0		1,600.00
Rent		720.00	840.00			560.00	3,000.00	3,000.00
Telephone		0		0		0	180.00	180.00
Electricity		0		0		0	85.00	85.00
Bank Interest — Personal Loan		136.99		86.43		594.64	673.71	330.54
Vacation to India		0		0		8,500.00	0	0
Gifts to Family		0
Income tax refunds		(68.00)	(222.33)			(593.75)	(6.98)	(43.10)
Income Tax payment on filing		0		0		0	103.83	2,003.05
Income Tax payment during year		219.00	793.95			686.97	124.35	524.90
C.P.P. & U.I.C.		89.70	212.05			108.80	122.92	239.40
Tuition		0		37.00		0	150.00
Miscellaneous Household items		150.00	150.00			150.00	150.00	150.00
Miscellaneous (transportation
vacation, medical)		500.00	500.00			500.00	500.00	500.00
Total Personal Expenses	$2,447.69		$3,097.10		$11,156.66		$6,303.37	$9,810.33

In addition to the tax assessed, penalties were also imposed under subsection 163(2) of the Income Tax Act.

With regard to Chicken Tandoor, the significant comment from the notice of appeal was:

The Minister of National Revenue made no assumptions, but issued the assessments based on mathematical calculations performed on a worth statement of Manohar Lal Ahir.

The Minister's amended reply to notice of appeal stated:

— The Appellant filed income tax returns for its 1978, 1979, 1980 and 1981 taxation years and declared its taxable income (loss) as follows:

	Taxable Reported Income
Taxation Year	(Loss) As Filed
1978	$3,009.00
1979	26.00
1980	Nil
1981	Nil

— In reassessing the Appellant for its 1978, 1979, 1980 and 1981 taxation years by Notices dated May 4, 1984, the Respondent increased the total income by the following amounts:

	Increase in
Taxation Year	Total Income
1978	$14,836.77
1979	23,184.09
1980	10,201.15
1981	17,266.07

— In reassessing the Appellant for its 1978, 1979, 1980 and 1981 taxation years, the Respondent assumed that:

— the Appellant, in reporting its 1978, 1979, 1980 and 1981 income, did not include all of the income received by it in those years; and

— the income of the Appellant during the 1978, 1979, 1980 and 1981 taxation years was understated by $65,488.08.

— In consequence, the respondent levied the following penalties against the Appellant for the 1978, 1979, 1980 and 1981 taxation years:

Taxation	Federal Federal	Provincial
Year	Penalties	Penalties
1978	$370.91	$445.10
1979	579.72	695.52
1980	262.45	276.34
1981	475.55	452.90

— For the 1978, 1979, 1980 and 1981 taxation years, the Appellant knowingly or under circumstances amounting to gross negligence failed to report the amounts referred to in paragraph 3 as income, and, as a result, the tax that would have been payable by it for those taxation years based on those amounts exceeds the tax that would have been payable by it assessed on the basis of the information provided in its 1978, 1979, 1980 and 1981 income tax returns.

The fiscal year for Mr. Ahir was the calendar year and for Chicken Tandoor was August 1 to July 31 each period.

Counsel for the appellants noted at the start of the hearing, that Mr. Ahir had been charged with income tax evasion, and had been convicted. However nothing further of consequence was brought forward by either party on that subject, and the question of "estoppel" was not raised by the Minister. Miss Butler did note however that in her view ”. . it’s my understanding that the issue is here because the taxpayer has a different burden of proof from what he had in the criminal matter, that the decision made in the Criminal Court was totally irrelevant to this Court . . .”. Also there was a reference by counsel, that the "conviction" in the criminal proceedings had been for only about half of the assessment — but no documentation or proof was submitted in support of that comment. No reference was made to any similar court proceedings with regard to Chicken Tandoor.

In presenting evidence, counsel for the appellants attacked three aspects of the assessments.

Second — That Mr. Ahir indeed had received some $47,000 from one Mr. Hukam

Chand.

Dealing with the first point above, while it is an interesting perspective, the "net worth" assessments were not based on some "gross profit" percentages — they were based on a reconciliation of Mr. Ahir’s assets and liabilities at various year-ends (Schedule "A" above). The primary requirement for the appellant, Ahir, then is to show that there are either, or both, some overstated assets, or understated liabilities. Some testimony or evidence which would support or substantiate such a primary conclusion (that there were inaccuracies in the "net worth" statement) based on average “gross profit” margins for the undertaking could be helpful — but they do not replace the basic requirement of dealing directly with Schedule "A" above. Accordingly nothing more need be said about this avenue of the "proof" until at least we have dealt with the second point.

The question of the $47,000 is the crucial one — and Mr. Ahir's testimony and evidence on that subject does not suffice to fulfil the heavy onus of proof on him. Mr. Ahir admitted that during several years at Chicken Tandoor he and another one of the owners at that time quite regularly divided the receipts from "Sunday" sales between them, certainly during the years 1977 to 1980, and did not report the income either as that of Chicken Tandoor, or of themselves. In effect, Mr. Ahir says now, that this practice of skimming off part of the revenues of the restaurant stopped when he was the sole owner, and that the discrepancies which show up on Schedule "A" over and above that which cannot be accounted for from this “skimming”, arose from the $47,000 left with him by his friend Hukam Chand. The time when Mr. Ahir became the "owner" will be discussed later on. The circumstances of the receipt of these funds — according to Mr. Ahir — were that he received $15,000 in 1976, $17,000 in 1979, and a further $15,000 in 1981. Other than stating that Mr. Chand was a sailor, whom he had known from boyhood, and that he was given the money "to keep for him” on occasions when Mr. Chand's ship docked at Halifax, little else was provided by Mr. Ahir about the funds. The story regarding Mr. Ahir's retention, safe-keeping, and actions with the funds over the several years involved is even more imprecise. At one time, a large portion of the funds was hidden by Mr. Ahir in the pot and pan storage room at the restaurant, while he, Mr. Ahir went back to India for four months to get married. In the end analysis — over several bank draft transfers and at least two trips to India, Mr. Ahir deposited most of his friend's money in some of his own (Mr. Ahir's) bank accounts back in India. However when the Revenue Canada investigation started in 1981, Mr.Ahir allegedly paid his friend Mr. Chand directly — who at that time was "some place in Europe" — by transfer of funds from Canada.

There may indeed be some situations when the confidence, trust and devotion between two parties can result in the setting aside of normal concerns of self-interest and self-protection to the degree that circumstances such as those described by Mr. Ahir could occur. I can only assume they are rare indeed, and I am only very mildly impressed by entreaties that such situations are much more common among some cultures than among others. To accept the proposition of Mr. Ahir — that somehow Mr. Chand (whom the Court must assume actually does exist) managed legitimately to accumulate these sums of money over these years on his income as a sailor, and that he desperately wanted to keep these funds out of India (for foreign exchange restriction reasons), requires a mental leap of faith beyond me, when contrasted with the contention of Mr. Ahir — that he (Ahir) then took the same funds back to India himself. I can only assume that Mr. Chand could have accomplished the same thing himself, by simply depositing the funds in Mr. Ahir's account in India if everything was as described. In any event, I shall not struggle further with this enigma — there is simply no reason to accept Mr. Ahir's explanation regarding the $47,000 — and I need not even detail the conflict and contradiction one can find in the documentation and evidence submitted, allegedly to be of assistance to the Court in so proving. That not only disposes of point #2 (above), it also completes point #1.

We turn to point #3 (above) and it seems to me that the major complaint from the appellant was with regard to the items indicated by the Minister for "food" — (1980 — $1,000; 1981 — $1,000); and "miscellaneous" — each year $500. I would not expect Mr. Ahir to have accurate records, perhaps any records regarding “personal living expenses", but even taking into account his description of his frugal life style, I do not find the total amounts for each year in issue at all unrealistic. I am further strengthened in this view by the comments and explanations provided by the Minister’s witness regarding the basis and rationale for each one of the amounts listed.

Before finalizing this matter, I would note that Mr. Ahir was very emphatic with respect to his disagreement with the amounts shown on Schedule "A" for "shares — Chicken Tandoor Limited”, and considering his testimony on this subject, the purchase of the relevant business, and/or the shares from a former partner, business associate or co-shareholder, — (depending on which specific year, and the arrangements between them allegedly in place during that year) I am less than absolutely certain he paid a total of $22,500 for the shares. However Mr. Ahir's testimony was so unclear, and so much in conflict with certain other documentations, evidence, and testimony presented by the Minister, that there is no reason for this Court to reject this part of the Minister’s "net worth" assessment, on the balance of probabilities.

In addition, I would comment on the contention of Mr. Ahir that during one or more of the years at issue he was married, and supported a wife who remained in India. Simply put, there was no substantive evidence placed before the Court that either aspect of this arrangement was in place. It may be that Mr. Ahir was married, and it may be that he provided support to a wife, but he has not shown that to be the case.

In my view, Mr. Ahir is the primary author of his own misfortune, and if he perceives in the reassessments and penalties against him personally, a degree of inequity, it is not for this Court to attempt to find the remedy. The assessments against Mr. Ahir, as an individual taxpayer are to be sustained.

We turn then to the assessments against the corporation — Chicken Tandoor Limited. Again, no viable evidence has been adduced which would highlight a source for the discrepancies shown on Schedule "A" (above), other than the business of the restaurant. The money left for safekeeping by Mr. Chand's “proposition” has simply been rejected — above. While the "inequity" or “double taxation" charge may indeed have some basis, in situations such as the instant appeals — effectively both Mr. Ahir and Chicken Tandoor paying income tax on the same income, that is the risk which does arise in circumstances such as these before the Court.

The appeals are dismissed in all aspects.

Appeals dismissed.