Pargan Singh v. Minister of National Revenue, [1981] CTC 2045, 81 DTC 52

M J Bonner:—The appellant appeals from assessments of income tax for the 1974 to 1977 taxation years inclusive. The appeal for 1977 was aban- doned and will therefore be dismissed. The respondent, by his counsel, consented during the hearing of the appeals to judgment allowing the appeal from the assessment for the 1975 taxation year and referring the assessment back to the respondent for reconsideration and reassessment on the basis that the deductions claimed for the support of non-resident dependants are to be allowed and that no penalty is exigible. Judgment will issue accordingly.

The appeals for 1974 and 1976 remain to be decided. The grounds set forth in the notices of appeal were stated to be, “The disallowance of personal exemptions and monies paid with respect thereto for dependent children and wife’’. As a lucid notice of appeal, this leaves much to be desired.

The appellant was born in India. He emigrated to Canada in 1972 or 1973. His wife and children remained in India. The appellant’s parents and grandparents remained in India as well.

In 1974 and 1976 the appellant claimed deductions in respect of the support of non-resident dependants as follows:

Despite the allegation in the reply to the notice of appeal that the 1974 claims in respect of the support of the appellant’s wife and two children were allowed, the explanation which accompanied the reassessment of October 23,1979, indicates that claims in respect of the appellant’s dependent children and parents were disallowed and that $927 of the $1,492 claimed in respect of the appellant’s wife was disallowed. The $565 allowed appears to have been in respect of a payment made through International Express Services and evidenced by a receipt dated March 18, 1974, a copy of which was attached to the appellant’s income tax return. The remaining 1974 claims were supported by receipts issued by Punjab Express Foreign Exchange Services (hereinafter called “Punjab’’).

As to 1976, the notice of assessment made December 13, 1977, simply states: “Your claim for non-resident dependants has been adjusted based on information available” and “Penalty of $246.93 levied under subsection 163(2) of the Income Tax Act is included in Federal Tax”. The reply to the notice of appeal indicates that all claims made for the support of nonresident dependants were disallowed on assessment.* [1]

The evidence of Noël Blair, one of the respondent’s assessors, indicates that such was the case. Mrs Blair testified as well that the 1976 tax return included receipts from Punjab for the amounts claimed in respect of all dependants other than the grandparents and that the basis of the disallowance was that there was no indication in the records of Punjab that any money was transferred to any dependant. I should note that the copies of the 1976 returns forwarded to the Board pursuant to subsection 170(2) of the Income Tax Act did not include copies of any Punjab receipts.* [2]

The enigmatic notice of appeal, the inaccurate reply and the incomplete documents do nothing to clarify what happened on assessment and the issues which arise as a result. However, both parties approached the case on the basis that the issue was whether the appellant did, in both years, send monies through Punjab as claimed.

The parties agreed that the evidence given by Mrs Blair as to the operation and records of Punjab during the appeals of Iqbal Sumbal is common to both those appeals and to the present appeals. I will therefore repeat the summary of that evidence and comments thereon as set forth in the reasons in the Sumbal appeal:

Evidence was given by Mrs Noël Blair, an assessor employed with the Special Investigations Branch of the Department of National Revenue. She testified that she was a member of a team of investigators who looked into the operations of Punjab. It was, she said, a business which received money in Canada and elsewhere for transmission to persons in India. As well, it received money in India for transmission elsewhere. Apparently foreign exchange laws of that country prohibited transactions of the latter type. Thus, monies received in India were paid to persons within that country in accordance with the directions of off-shore customers and equivalent amounts of monies received off-shore were paid in accordance with the directions of Indian customers. In short, the operation was one of substitution.

The respondent seized the business records of Punjab. The investigation revealed, according to Mrs Blair, that although the business had operated in the manner described, the receipts issued in Canada exceeded the funds actually transferred. Punjab records showed, she said, no indication that transfers of funds were made by it or on behalf of or at the behest of the appellant. The proprietor of Punjab, one Gian Singh Johal, pleaded guilty to twenty-four charges of providing false receipts for tax purposes. In no charge was the appellant alleged to be a recipient of a false receipt. I cannot find that a plea of guilty by a person who is not a party to this appeal establishes that all Punjab receipts were false or that the receipts issued to the appellant were false. Equally, I can place no reliance on the state of the facts as revealed by the books of a person who, had he been called as a witness, would undoubtedly have been subject to a successful attack on credibility based at least on the conviction. I note that no objection was made to the admissibility of this evidence. In any event, I regard it as utterly useless.

I should add that here, as in the Sumbal case, there was, according to Mrs Blair, no evidence in the Punjab register of funds transferred of any record of transfers made at the behest of the appellant during 1974 or 1976.

The appellant gave evidence. He said that the monies sent to India were sent through Punjab and that he paid Punjab by cheque. A copy of his passbook for the period from September 17, 1973, to July 15, 1974, was marked as Exhibit A-1. He was asked about a number of cheques noted therein. He identified two entries, February 18, 1974, for $630 and July 11, 1974, for $540, as being funds sent to India. The entries apparently correspond to cheques marked as Exhibit A-2, in respect of which no claim was asserted. The payees were foreign exchange services other than Punjab. One other entry dated July 8, 1974, being a cheque in the amount of $500, was Said to relate to monies paid to Punjab. It does not tally, either in date or amount, with any of the receipts attached to the return of income. I cannot find that the appellant was not allowed a deduction in respect of any expenditure which he said was made in 1974 and in respect of which a claim was disallowed. I cannot regard any of the Punjab receipts attached to the return as reliable in light of the appellant’s evidence of what happened in 1976.

The appellant’s evidence as to support payments made in 1976 was that he went to India on October 24, 1975. He withdrew $1,000 from his bank before leaving and converted it, together with $500 which he had in cash, to the equivalent amount in travellers cheques in pounds sterling. In India he cashed the travellers cheques and received 13,000 rupees. He gave 2,000 rupees to his wife and loaned the balance to Mr Johal, proprietor of Punjab. There was no indication in evidence that the 2,000 rupees were given to the appellant’s wife in 1976. There was also no indication in evidence that Mr Johal repaid the balance to the appellant by paying 11,000 rupees to the appellant’s wife at any time. The appellant returned to Canada on February 27, 1976.

In October of 1976 the appellant said he gave a cheque for $1,500 to Mr Johal. He identified the entry in his bank passbook, Exhibit A-4. The appellant did not say that this money was sent or intended to be sent to India for the support of his dependents.

Finally, the appellant said that Mr Johal gave him receipts dated in 1976 in relation to “extra money” paid to Johal in 1975. It would appear that receipts issued by Punjab cannot be regarded as accurate.

In summary, the appellant had every opportunity to testify, as it was in his interest to do, that he had paid the monies claimed in 1976 for the support of the named dependants. His failure to do so leads me to conclude that the monies in question were not expended, at least for the relevant purposes. The appeals for 1974 and 1976 are therefore dismissed.

Appeals dismissed.