Ketchum, Prov. Ct. J.:—The Information against this accused charges four counts of failure to comply with paragraph 231 (3)(a) of the Income Tax Act of Canada. The Crown seeks convictions on all four counts and the imposition of the penalties provided by subsection 238(2) of the Income Tax Act.
The evidence at trial was brief, but there has been extensive legal argument. The Crown called only one witness, Mr. Carbone, an employee of Her Majesty the Queen in Right of Canada. Twelve exhibits were entered without objection. The effect of those exhibits, coupled with Mr. Carbone's testimony, was to identify the accused as the person who, on the 18th of March, 1985, had been personally served with demands to file 1981, 1982 and 1983 personal income tax returns, as well as a statement of assets and liabilities as at December 31, 1984.
All these demands required compliance within 30 days of March 18, 1985 and there was formal proof that as at the end of May 1985 there had been no compliance.
Defence counsel cross-examined Mr. Carbone at length in an attempt to draw from the witness information designed to show that although the accused had failed to comply with the Minister's formal demands, those demands were not prompted by a genuine and serious inquiry into the tax liability of Mr. Schacher. Early in his cross-examination defence counsel made it clear to the witness that he was seeking information which would show that the demands were prompted by a hidden agenda, namely, the gathering of information for other employees of Her Majesty the Queen in Right of Canada, specifically, the R.C.M.P. In a brief re-examination of Mr. Carbone no questions were directed to him by counsel for the Crown on this issue, nor were any further witnesses called by the Crown. In passing I note that counsel for the Crown on the extensive legal argument addressed to me was not counsel of record for the taking of the evidence.
The transcript of the evidence discloses that on March 18, 1985 Mr. Carbone was attached to the Special Investigation Unit of Revenue Canada. He had been assigned the file on Mr. Schacher by his superior, and one of his tasks was to serve these demands on the accused. It was assigned to him at about the same time as the R.C.M.P. were requesting information on Mr. Schacher. The evidence leads me to the conclusion that these requests were in the period prior to preparation of the demands which Mr. Carbone served on Mr. Schacher. When the file was assigned to him Mr. Carbone agreed that the file appeared to have been dormant in terms of any recent attempts by Revenue Canada to seek tax information, or to collect taxes owing from Mr. Schacher. I find that for those purposes the file had been dormant for approximately four years. I further find that there is no evidence before me that enables me to conclude that in 1985 Revenue Canada's file on this accused was reactivated pursuant to any automatic review or collection procedures of Revenue Canada. In fact, I find that the evidence of Mr. Carbone leads me irresistibly to the conclusion that in 1985 this file was reactivated as a result of inquiries and requests from the R.C.M.P. to Revenue Canada. That evidence also leads me irresistibly to the conclusion that service of the demands under subsection 231(3) was prompted primarily by those same R.C.M.P. inquiries and requests. In assessing Mr. Carbone's demeanour and evidence I find him to be an employee who was carrying out the instructions of his supervisor. He appeared to have very limited discretion as to the conduct of this file, but he answered as accurately as he could from his limited personal acquaintance with the file, and from his personal experience as an officer in Special Investigations. On re-examination, Mr. Carbone said that the purpose of the demands he served on this accused was to get him to file a tax return. Nowhere in the evidence can I find a reference to any information received by Revenue Canada from any source that led Mr. Carbone or any representative of Revenue Canada to have a bona fide belief that there was some probability that the accused might have taxable income for the years in question, or the ability to pay arrears owing. Mr. Carbone's references to inquiries and requests from the R.C.M.P. were in the context of that force requesting information from Revenue Canada and not in the context of that force providing information to Revenue Canada.
I find that the evidence in the case satisfies me beyond any reasonable doubt that on March 18, 1985 the demands served on this accused pursuant to subsection 231(3) of the Income Tax Act related to the tax liability of this accused. However, the Crown has not satisfied me beyond a reasonable doubt that those demands were served because the tax liability of this accused was the subject of a genuine and serious inquiry by the Minister of National Revenue. On the contrary, the defence has satisfied me that the demands were precipitated by requests and inquiries from the R.C.M.P.
Since I conclude that the Crown must prove both these elements in order to secure a conviction I am acquitting the accused on all counts.
My reasons for finding that these two elements must be proved in any prosecution under subsection 231(3) are as follows:
The correct statutory interpretation of subsection 231(3) of the Income Tax Act, and in particular the scope of the Minister's power to demand information under that section, has been adjudicated on by the Supreme Court of Canada on at least two occasions — The Canadian Bank of Commerce v. Attorney General of Canada, [1962] S.C.R. 729; [1962] C.T.C. 35 and James Richardson and Sons Limited v. M.N.R., [1984] S.C.R. 614; [1984] C.T.C. 345.
My reading of the court's judgment in the James Richardson case convinces me that the prerequisites of a valid demand under subsection 231(3) are that there is a genuine and serious inquiry by the Minister into the tax liability of some specific person or persons. I reject the proposition that the only essential elements to be proved by the Crown are proof of a demand and failure to comply. In my view, in order for the demand to be proper it must meet the prerequisites referred to above. The case of Regina v. Rol- bin, 1 C.R.R. 186 was cited to me by the Crown but I note that it was decided two years before the Supreme Court of Canada judgment in James Richardson and Sons Limited v. M.N.R.
In the James Richardson case the appellant corporation had been served with demands under subsection 231(3) for the names and addresses of its customers who were traders in the commodities futures market, as well as for details of their trading accounts. The Minister admitted that neither the tax liability of the appellant, nor any of its customers, was under investigation when it made the demands, and that the demands were for the purpose of verifying the accuracy of income tax returns made by traders in commodities futures. It was argued that this purpose was a purpose related to the administration and enforcement of the Income Tax Act and therefore within the scope of subsection 231(3). In the result, the Supreme Court of Canada held against the Minister, not only on the narrow ground that the demand must relate to the tax liability of some specific person or persons, but also on the broader ground that the demand must relate to a genuine and serious inquiry into the tax liability of that specific person. The Canadian Bank of Commerce case is cited as authority for these two prerequisites to a valid demand under subsection 231(3). Moreover, the Canadian Bank of Commerce case is cited as authority that the test of whether the Minister's purpose in issuing the demand is a valid one, is an objective test, to be decided on the proper interpretation of the subsection and its application to the circumstances disclosed.
In the Richardson case the Supreme Court of Canada found that the circumstances disclosed that the demands under subsection 231(3) were being used to fish for information in order to check on compliance with the Income Tax Act by traders in the commodities futures market. The Court held that the approach it took in the Canadian Bank of Commerce case was the right one, namely,
That section 231(3) is only available to the Minister to obtain information relevant to the tax liability of some specific person or persons if the tax liability of such person or persons is the subject of a genuine and serious inquiry at 625 (C.T.C. 351).
These findings made it unnecessary for the court to make any comment on the arguments as to whether the demands were also void under the Canadian Bill of Rights and the Canadian Charter of Rights and Freedoms.
While I am very grateful to all counsel for their depth of research into the Charter issues raised by the facts in this case, my findings do not compel me to make rulings on those issues. Following the advice of the Supreme Court of Canada in Law Society of Upper Canada v. Skapinker, [1984] 1 S.C.R. 357 at 383; 9 D.L.R. (4th) 161 at 181, I decline to make any comment on those issues.
All counts dismissed.
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