Vincent J Cotroneo v. Minister of National Revenue, [1983] CTC 2689, 83 DTC 617

Taylor, TCJ:—The following motion was heard at Toronto, Ontario, on September 19, 1983:

TAKE NOTICE that counsel for the Respondent will move on Monday, September 19, 1983 at 9:30 in the forenoon at the Courtroom, 19th Floor, Toronto- Dominion Bank Tower, Toronto-Dominion Centre, Toronto, Ontario for an Order pursuant to Rule 7 of the Tax Review Board Rules granting leave to the Respondent to file his Reply to the Notice of Appeal of the Appellant herein.

AND TAKE NOTICE that in support of this application will be read the Affidavit of Marie-Thérése Boris, filed, and such further and other material as counsel may advise and this Honourable Court may permit.

Counsel for the respondent noted for the Court that Mr Dingle was at the hearing as Mr Cotroneo’s agent, not as his counsel. I am not certain what implication, if any, is in that distinction, but I have not found it relevant to the decision in this matter. Mr Dingle had initiated the issue in this way:

DeFALCO & DINGLE Barristers & Solicitors

Suite 1208

J DeFALCO	100 Adelaide Street West
J R DINGLE	TORONTO, CANADA M5H 1S3
	Telephone (416) 365-0522
	TELEX 065-24037
	May 4th, 1983.
DELIVERED
Miss Marie-Therese Boris,
Counsel,
Tax Litigation,
Toronto Regional Office,
Toronto-Dominion Centre,
Toronto, Ontario.
Dear Miss Boris:
	RE: Cotroneo v MNR
	Appeal No 82-1996

I received your letter today enclosing a copy of the Minister’s proposed reply in the above appeal. On November 18, 1982, I filed the Appellant’s Notice of Appeal, looking forward to your Minister’s reply within a reasonable time. No such result obtained and after some months of frustration, I obtained instructions to set the matter down.

Since your letter does not indicate that you acknowledge this fact, I must assume that you were unaware of it. Please be advised therefore, that on April 13, 1983, I brought application pursuant to Rule 7 of the Tax Review Board Rules to have this appeal entered on the Board’s list of appeals for the next available sittings in Toronto. Since your client is, at this late juncture, estopped from filing a Reply, I should appreciate it if you would confer with him, and advise me of the Department’s intentions.

Yours truly,

(Sgd)

JRD:hc John R Dingle

c.c. Registrar

Tax Review Board

It is noted that neither the Income Tax Act, nor the Tax Review Board Act under which this appeal was launched because it was the predecessor to the Tax Court of Canada, contains a provision requiring or even providing for the filing of a reply to notice of appeal by the Minister. Such a prospect arises only out of the Rules of Practice and Procedure respecting the Tax Review Board, approved by Order in Council on September 4, 1973. A question was raised at the hearing regarding the applicability of such Rules, where it might be argued they were in conflict with either of the governing Acts — the Income Tax Act or the Tax Review Board Act — but that matter was not pursued by either counsel. It is patently obvious that both parties recognized some validity in the rules applicable in this matter, or they would not be appearing before the Court contesting the issue. Accordingly, the Court finds no reason to question the Rules further in this particular matter and specifically leaves aside the determination of their overall legality and applicability in a general sense, which arose during the hearing. I would add, however, that the overriding purpose of the “Rules of Practice and Procedure in Appeals to the Tax Review Board” would appear to me to be their utility to the Board in expediting appeals, not necessarily their utility to the parties involved. The relevant Rules are:

7. If no Reply to a Notice of Appeal has been filed within sixty days from the date on which the Registrar of the Board has transmitted the Notice of Appeal to the Minister of National Revenue, the appellant may make an application to the Registrar to have the appeal entered on the list of appeals to be called for hearing at the next sitting of the Board in the appellant’s district and, upon the making of such application, no Reply shall thereafter be filed without leave of the Board.

8. Where No Reply to a Notice of Appeal has been filed, the Board may dispose of the appeal on the basis that the allegations of fact contained in the Notice of Appeal are true.

In advance of the hearing, the Court was provided with copies of Mr Co- troneo’s 1980 income tax return, the assessment notice at issue dated October 29, 1981, the notice of appeal, and the contested Minister’s reply to notice of Appeal. The notice of objection dated January 26, 1982, had been filed and the issue before this Court arose out of the fact that the Minister had not notified the appellant that the assessment was either confirmed or vacated as required by subsection 165(3) of the Income Tax Act. The notice of assessment for a total tax payable of $414,092 included the notation “SEE T7W-C ATTACHED”. No T7W-C form explaining the basis for the assessment was attached. It was filed with the Court at a later time during the week of the hearing but was of little assistance, stating simply: “Add: Other Income not previously reported”. In addition to the T7W-C noted above, the Minister at the same time filed with the Court certain legal documents which would indicate the appeal of Mr Cotroneo had a relationship with other matters and other persons — both individual and corporate — in which certain criminal proceedings had resulted.

There are two particular paragraphs in the notice of objection noted below, which would appear to me to bear directly on the point at issue before this Court:

As a result of the foregoing, the Minister has seen fit to include in the income to the Taxpayer, without any explanation whatever, the amount of seven hundred twenty-nine thousand two hundred dollars forty-four cents ($729,261.44) [sic]. The Minister has never once vouchsafed to the Taxpayer any reasonable foundation for including any such amount or part thereof in the Taxpayer’s income.

The Minister in relying upon allegations which were totally without foundation has arbitrarily assessed the Taxpayer in such a manner as to constitute bad faith. Furthermore, he has not provided the Taxpayer with any explanation whatever for the inclusion referred to in his Notice of Reassessment, nor has he ever requested information from the Taxpayer with a view to clarifying the situation. In doing so, the Minister has placed the Taxpayer in the impossible position of being required to pay an assessment without being able to inform himself of the case that he has to meet. It is therefore submitted that the Minister’s reassessment must be vacated forthwith.

The essence of that complaint (lack of adequate information) was repeated in the notice of appeal which has prompted this hearing:

As a result of the foregoing the Minister has seen fit to include in the income to the Taxpayer, without any explanation whatever, the amount of Seven Hundred Twenty-nine Thousand Two Hundred Dollars and Forty-four Cents ($729,200.44). The Minister has never once vouchsafed to the Taxpayer any reasonable foundation for including any such amount or part thereof in the Taxpayer’s income.

In the contested reply to notice of appeal, the Minister has put forward the following:

The Respondent relies, inter alia, on Sections 3, 5 and 15 and subsections 56(2) and 56(3) of the Income Tax Act, RSC 1952, chapter 148, as amended.

The Respondent submits that the Appellant properly has been assessed for his 1980 taxation year as an amount not less than $729,261.44 in the 1980 taxation year was a payment or transfer of property made pursuant to the direction of, or with the concurrence of, the Appellant to some other person for the benefit of the Appellant or as a benefit the Appellant desired to have conferred on the other person, and if the payment or transfer had been made to the Appellant it would have been included in the computation of his income pursuant to Section 15 of the Act, and therefore is to be included in the computation of his income by virtue of subsection 56(2) of the Act.

The Respondent submits that it is within the Appellant’s knowledge to identify the source of funds deposited to the bank account of M & M Currency Exchange Ltd or received in cash on its behalf, and to identify the application of those funds, and puts the Appellant to the strict proof thereof.

In support of the Minister’s motion, counsel for the respondent filed with the Court an affidavit intended to show that it had always been the intention of the Minister to file the reply, and that no time had been wasted by the respondent between the date of the notice of appeal (November 18, 1982) and the date of the reply (May 3, 1983). Certain oral representations were also made to the Court by counsel for the respondent intending to show that over a lengthy period of time covering personal discussions, telephone calls, meetings with lawyers, agents, etc, and ultimately related court proceedings, this appellant Mr Cotroneo had been fully informed of the basis for the assessment at issue. It was the view of counsel for the Minister that it was impossible for Mr Cotroneo, or Mr Dingle, to take a contrary position without the risk of misleading the Court.

Mr Dingle did not bring forward any evidence or testimony to assist him in contesting the Minister’s motion and while it was evident to the Court that Mr Dingle personally was quite familiar with a wide range of the matters which seemed to have a relationship to this motion, he was, of course, not in a position to testify thereto himself.

As I see it, the Court is faced with a problem of the Minister’s own making. That does not mean that the Minister should not be granted relief but it should be noted that the lack of detail in either the assessment notice or the relevant T/W-C, when compounded by the neglect or decision of the Minister not to respond to the notice of objection quickly, led to the only alternative available to the appellant — to file directly with the Board (as it was then) the notice of appeal. In effect, the earlier noted telephone calls, meetings, court proceedings, etc, notwithstanding, the single fact is that until the filing of the contested reply to notice of appeal dated May 3, 1983, the appellant had no official knowledge of the basis for the assessment dated October 29, 1981 although he had followed all the formal procedures required. The tangled and perhaps unsavoury web of intricate business and personal dealings which it is alleged by the Minister has a bearing on this matter before me, does not, in my view, have any such merit. The appellant’s conduct, his business affairs, his methods of earning income, his personal or business associates and advisors while interesting and perhaps relevant ina determination of the merits of the appeal itself, have no place in the narrow point before the Court. I note with interest the final paragraph of the contested reply, (Supra):

The Respondent submits that it is within the Appellant’s knowledge to identify the source of funds deposited to the bank account of M & M Currency Exchange Ltd or received in cash on its behalf, and to identify the application of those funds, and puts the Appellant to the strict proof thereof.

If that is indeed the ultimate position of the Minister, then one can only agree with the appellant’s alleged dilemma.

The position taken by this Court with regard to appellants is usually charitable in the extreme when there is any possibility of a taxpayer becoming entrapped in technical or administrative delays or difficulties. One might easily argue that a similar posture should be adopted in this matter since the contrast is so striking between the minor demands placed on a taxpayer under the Act in filing an appeal, with the rigid requirements on the Minister under the Rules, (Supra). However, one must not forget that it is the taxpayer in an appeal who must demonstrate and prove to the satisfaction of the Court that the contested assessment is wrong — not an easy task when confronted by vague or imprecise supportive information. In my view, once an assessment has reached the stage of an appeal to the Court, it should have been thoroughly ventilated by the parties and there should be little, if any, doubt about the nature of the matter in dispute. Therefore, this motion, as I see it, raises not just a technical point but a point of principle. As I read Rule 7, if “leave of the Board” (now “Court”) is not granted, then Rule 8 above could be applied. The “allegation” of import in the notice of appealed, (supra), is that the Minister has not provided to the appellant a “reasonable foundation” for the assessment. Rule 8 is permissive to the Court but if the discretion therein is exercised under circumstances where indeed there was no “reasonable foundation” for the assessment, it is difficult to see how any result other than allowing the appeal and vacating the assessment could obtain. Again, as I see it, that would require at least the technicality of a hearing on the merits of the appeal itself, not merely on the motion before this Court now. It would be at that point, that the appellant would have the opportunity to move that the discretion under Rule 8 be exercised, in that the Court recognize that the inability of the taxpayer to proceed arose out of the Minister’s negligence, and that the assessment be vacated. I presume that the Minister might wish to, and could contest the motion, thereby assuming the onus for conduct of the trial and proving the assessment. In short, it is my opinion that the Minister’s interest in filing the contested reply to notice of appeal in this matter is out of a desire to leave the onus for the conduct of the appeal proceedings on the shoulders of the appellant, an expectation which I view as unwarranted under the circumstances. If indeed the Minister’s assessment is substantive, then the case will not be prejudiced by the necessity of it being established at trial. Finally, I doubt that the Court would be much enlightened about the merits or demerits of the appeal itself by virtue of the limited information contained in the contested reply to notice of appeal. The Court is prepared to proceed without it.

Therefore, the motion by the respondent requesting that the reply to notice of appeal be filed with the Court under Rule 7 noted above is denied. The appeal of Vincent J Cotroneo as detailed in his notice of appeal dated November 18, 1982 shall be set down for hearing by this Court at the earliest convenient time.

The motion is denied.

Application dismissed.