Tarsem T L Kapal v. Her Majesty the Queen, [1981] CTC 454, 81 DTC 5336

Collier, J:—This is an appeal from a decision of the Chairman of the Tax Review Board.

The plaintiff had claimed, as deductions in calculating his taxable income for 1975, an amount of $3,166.82. He said these were amounts expended by him for the support of relatives by marriage in India. The deductions were claimed pursuant to paragraph 109(1 )(f) of the Income Tax Act.

The Minister of National Revenue allowed $1066.82. The remaining amount of $2,100 was disallowed on the basis that payments of that amount had not in fact been made. A penalty of $150.23 was, pursuant to subsection 163(2), imposed.

The Chairman of the Tax Review Board upheld the Minister’s assessment and the penalty.

In 1975 the plaintiff’s father-in-law, mother-in-law and four sisters-in-law lived in India. They were part of the Kallia family. The sisters-in-law were Veena, then age 19, Aruna, age 17, Usha, age 14 and Uma, age 12.

The payments, permitted as deductions by the Minister, were supported by Canadian Imperial Bank of Commerce copies of bank drafts. They were as follows:

In the same year, the plaintiff’s wife is said to have paid $130 to her father.

The plaintiff testified he paid, on January 8, 1975, $1,100 to a money transfer service with instructions to forward the funds to India. Of the $1,100, $454 was directed to be paid to his father-in-law, and $646 to his sister-in-law, Veena. He said he paid, on December 15, 1975, to the same money transfer service, $1,000, with instructions to transmit $296 to his sister-in-law, Aruna, and $704 to his sisters-in-law, Usha and Uma.

In 1975 the maximum deduction that could be claimed for dependants falling within paragraph 109(1 )(f) was $646 for those over 16, and $352 for those under 16. The amounts alleged to have been paid by the plaintiff and his wife are around the maximum deductions permitted by the Income Tax Act.

The dispute, as I earlier recounted, is over the $2,100 allegedly paid by the plaintiff in January and December of 1975.

He produced four receipts for the following amounts

The receipts were issued by an employee of Punjab Express Foreign Exchange Services. That business was carried on by one Gian Singh Johal in Toronto, Ontario. He was called as a witness by the defendant. From 1973 to 1977 Punjab Express, for a commission, transferred funds for clients, through Hong Kong or England, to India. Customers paid Punjab Express money, with instructions as to whom the funds were to be paid in India.

Punjab Express gave receipts to clients. The evidence before me indicates there were legitimate transactions carried out by Punjab Express. The evidence also indicates there were a large number of fraudulent transactions carried out by Punjab Express.

The revenue department investigated Punjab Express in 1976 and 1977. The department was checking into the authenticity of receipts issued by it. As a result of that investigation, it was determined that from 1974 through 1977, approximately 1,300 taxpayers in the Toronto-Hamilton area had claimed support deductions of approximately four and one-half million dollars, using Punjab Express receipts as proof. The investigators were only able to find actual transfers, in the Punjab Express records, of about one- half million dollars.

Johal admitted to giving receipts to customers when in fact no funds had been received from them for transfer to India, and where no funds were ever in fact transferred to India. Put simply, false receipts were issued to individuals so they could be used for purposes of support deductions in computing income tax.

Johal testified that when this was done, no financial entries were made in his records. But in respect of his records kept of true payments of funds and transfer to India, the department was able to verify, over a certain period of time in 1975, the legitimacy of all the transactions actually recorded, except one.

The records of Punjab Express do not disclose any receipt and transfer of funds on behalf of the plaintiff to persons in India. Johal gave some testimony as to the disappearance, at some stage, of a third record book. I do not accept his testimony on that point.

The plaintiff, to counteract all this evidence, called his father-in-law and his four sisters-in-law to give evidence. They were brought to Canada by him in 1976.

Their evidence was, in my opinion, unsatisfactory.

The father-in-law testified he had received from an “agent”, at the village in which he lived in India, 10,000 rupees on January 22, 1975 and 9,000 rupees on December 29, 1975. The equivalent in Canadian dollars is $1,100 and $1,000 respectively. He said he received these two amounts in 1975; they were the only amounts he received. He admitted the dates of January 22, 1975 and December 29, 1975 had been given to him by his son-in-law after the family came to Canada in 1976.

I found the father-in-law’s evidence unreliable.

The sister-in-law, Veena, gave evidence. She said she received money twice in 1975. by this she meant cash. Again, she came up with the precise dates her father had given as to the date of receipt. She said an agent came to their house with the cash. She and her father counted the money. She signed a blank piece of paper for the cash.

She also said she received other money orders from the plaintiff in 1975. The evidence is flatly against that statement. There were no Canadian Imperial Bank of Commerce money orders payable to her. She said she received cash twice. But only one of the alleged Punjab Express payments is shown as directed to her. That was a January 8, 1975 receipt. Not a December payment which she recalled as the first payment.

She further testified her mother kept a bank account in a bank. The bank drafts which came to India were deposited to that account. But the two substantial cash payments, she said, were not deposited in the bank. That money was kept at home and spent for living expenses.

Again, I do not find the evidence of this sister-in-law to be credible.

Another sister-in-law, Aruna, would not answer any questions put to her by me. I cannot accept her evidence as trustworthy.

The two younger sisters-in-law both admitted they had no personal knowledge of any moneys being received by them from the plaintiff. They testified they were told of this by their sister, Veena.

I am satisfied the Minister has, on a balance of probabilities, proved the alleged payments of $2,100, if they were made at all, never in fact reached the plaintiff’s in-laws in India.

To put the matter another way, the plaintiff has not satisfied me, on a balance of probabilities, he made the Punjab Express payments which he claimed as deductions under paragraph 109(1 )(f).

The appeal is, therefore, dismissed. The reassessment of the Minister is confirmed. The defendant will recover the costs of this action from the plaintiff.