Date: 20020517
Docket: 2001-4324-IT-I, 2001-4341-IT-I
BETWEEN:
ANDRE D. BENTOLILA,
LISE BENTOLILA
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
and
Reasonsfor Judgment
Miller J.
[1] The appeals of Andre Bentolila and Lise Bentolila, by way of the informal procedure, from the Minister of National Revenue's (the Minister) reassessment of their 1996 and 1997 taxation years, Mr. Bentolila's 1993 taxation year and Mrs. Bentolila's 1998 taxation year were heard on common evidence. The Bentolilas claimed non-refundable tax credits for charitable donations to the Or Hamaarav Sephardic Congregation, and in Mrs. Bentolila's case, also to the Arabenel S. Learning Centre. The Minister disallowed these claims and imposed penalties pursuant to subsection 163(2) of the Income Tax Act (the Act).
[2] The Bentolilas' case is curious as it unfolded with a number of unexpected developments. The first was an inquiry by Respondent's counsel as to the nature of the assessments under appeal. He had seen a copy of an assessment, just before trial, which suggested to him that some of the assessments under appeal may have been nil assessments. As this could have significantly affected how he proceeded, time was allowed to check with the Chief of Appeals in Ottawa as to whether, according to Respondent's counsel, the "appeals were alive". While this seemed a late stage for the Respondent to make such a determination, the answer was quickly received that yes indeed, the appeals were "live". At this point I was advised by the Appellants's son, who was acting as their agent, that neither Mr. nor Mrs. Bentolila intended to testify. After some brief commentary on the relevance of the Respondent's assumptions and on the fact that the Appellants could be called to testify by the Respondent, the Appellants's agent sought a brief adjournment. On reconvening, the Respondent's Book of Documents was agreed to be introduced in whole as a Exhibit A-1. The agent for the Appellant directed me to paragraph 43 of the judgment of Justice Shamai in the case of R. v. Edery, [2001] O.J. No. 1437, in which the following was stated:
...
1994: Abarbanel showed $285,967 in donations, yet receipts for donations totalled $758,807
1995 Abarbanel showed $312,229 in donations, yet receipts totalled $995,970
1993 Or Hamaarav showed $180,857 in donations, yet receipts totalled $558,191.
1994 Or Hamaarav donations totalled $233,685 while receipts totalled $1,296,208.
1995 Or Hamaraav showed $363,745, while receipts totalled $1,573,208.
[3] Secondly, the Appellant directed me to an Information from Mr. Frank Manetti containing 48 counts against Rabbi Edery, all based on the issuance of false charitable receipts. None of the receipts referred to were in connection with the Appellants.
[4] The Appellants' agent then proceeded to call two witnesses subpoenaed by the Respondent; the first was Mr. Jacob Abecassis, and the second was Rabbi Edery. The Appellants ultimately determined not to give evidence on their own behalf, and neither did the Respondent's counsel call them as witnesses. With that as a background of how the trial unfolded, I will now review the facts as provided by Mr. Jacob Abecassis, Rabbi Edery, Mrs. Edery and the Special Investigations Officer of Canada Custom and Revenue Agency, Mr. Frank Manetti.
[5] Mr. Jacob Abecassis was a broker in Toronto who offered a tax preparation service during the 1990s. In 1995, he was made aware of a so-called donation program through Mr. Meyer Cohen. The gist of Mr. Cohen's explanation to Mr. Abecassis was that wealthy clients made donations without disclosing their name, and for an administration fee of 20% of the face value of the donation, Mr. Abecassis' clients could have their names put on the charitable receipts. The charities in question were registered charities run by Rabbi Edery: the Or Hamaarav Sephardic Congregation and the Arabenel S. Learning Centre. At some point late in 1995, Mr. Abecassis was advised by Rabbi Edery to no longer deal with Mr. Cohen. Mr. Abecassis would provide Rabbi Edery with the names and addresses of his clients and the amount of tax receipts needed. The Rabbi would deliver the requested receipts and collect the administration fee, which was split with Mr. Abecassis. Rabbi Edery testified that he understood the payment collected from Mr. Abecassis' clients was only a down payment with the balance to be forthcoming. No balance was ever forthcoming and I do not accept the Rabbi's explanation. Mr. Abecassis indicated that he never had any dealings with the Appellants.
[6] In 1996, Mr. Abecassis became concerned that clients were going directly to Rabbi Edery, so he started printing and issuing his own receipts. Apparently, feeling some remorse at cutting out Rabbi Edery, he stopped this practice and indeed paid over to Rabbi Edery what he believed to be the Rabbi's share of the administration fees garnered from his solo fraudulent scheme.
[7] Both Rabbi Edery and Jacob Abecassis were convicted of offences under the Act. The Special Investigator, Mr. Frank Manetti, confirmed that his investigation determined the accuracy of the numbers set forth earlier (see paragraph 2), as found in Justice Shamai's decision in the Edery criminal trial. Mr. Manetti also testified that his investigation turned up approximately 4,000 receipts, and as they needed to lay charges expediently, they went through the receipts alphabetically and proceeded with those taxpayers who were prepared to admit the use of grossly inflated charitable receipts. The Bentolilas' names were not on that list.
[8] Rabbi Edery testified that the Bentolilas were long-standing members of his congregation. He had known them since 1974 and considered he had a special relationship with them. In examination by the Appellants' agent, Rabbi Edery could not identify how often Mr. Bentolila brought donations, nor did he specifically recall how much was paid in cash and how much by cheque. He did state that he never issued inflated receipts to the Bentolilas.
[9] On questioning by the Respondent's counsel, Rabbi Edery would not initially acknowledge any guilt in connection with his conviction on the 48 counts contrary to the Income Tax Act. On production of the information and Justice Shamai's judgment, he eventually acknowledged he had been found guilty and was sentenced to one-year house arrest and a $32,000 fine.
[10] In answer to more detailed examination with respect to the Bentolilas' donations, Rabbi Edery indicated Mr. Bentolila would give a number of donations throughout the year, and then would be issued one receipt. Usually, his wife would keep track of such donations. Mrs. Edery would fill in the receipts and Rabbi Edery would simply sign them. Respondent's counsel went through each receipt issued to the Bentolilas produced in evidence. Rabbi Edery had no clear memory of any of the donations being made by cheque. Any of the donations he claimed to recall were cash payments. He further testified that he would date receipts as requested by the donors. His testimony was confused and at times contradictory. Although at times he seemed to remember specifics of a particular visit by Mr. Bentolila, I find such evidence unreliable. The most that can be gleaned from Rabbi Edery's testimony is that Mr. Bentolila visited him on several occasions (dates unknown) and made donations of varying amounts (amounts unknown), mainly in cash, and receipts were sometimes, but not always, provided at the time of the donation. If receipts were not immediately provided, the Rabbi's wife would make a notation of the amount in a notebook or on a piece of paper. Mrs. Edery could not produce any such records, as she testified they were thrown out once a receipt was issued. Mrs. Edery had testified in her husband's criminal trial that she did not keep records.
[11] Rabbi Edery implored the Respondent's counsel to ask the Bentolilas when and how much they donated, as he believed they would have a better grasp on this information.
[12] With respect to the receipts, Mr. Manetti testified that the numbering of several of the series of receipts, some of which series contained the Bentolilas' specific receipts, was suspicious. For example, a receipt dated December 30, 1994 to Mr. Bentolila was numbered 6271, yet receipt 6273 was dated a couple of months earlier, in October.
[13] Part of the scheme described by Mr. Manetti involved Rabbi Edery accepting the full amount shown on the receipt, but then returning 90% of it to the donor. There was no evidence that he engaged in such conduct with the Bentolilas.
[14] I am satisfied that the Bentolilas made donations to Rabbi Edery's registered charities during the years in question. They, unlike many other charitable receipt recipients, had a long-term special relationship with the Rabbi. I have no determinative evidence that any of such donations were made other than by cash. I also have nothing conclusive to confirm if the receipts were issued at the time; to the contrary, I have an acknowledgment from the Rabbi that the date in many cases was suggested by the donor. I conclude that the dates in the Bentolilas receipts do not reflect the dates on which the cash donations were actually made. Neither can I find, based on Rabbi Edery's and his wife's testimony, without the benefit of any evidence from the Appellants, that the dates even reflect the date the receipt was issued. The irregular numbering of the receipts further supports this finding. Having reached this conclusion, I turn to Regulation 3501 of the Income Tax Regulations, which reads:
(1) Every official receipt issued by a registered organization shall contain a statement that it is an official receipt for income tax purposes and shall show clearly in such a manner that it cannot readily be altered,
(a) the name and address in Canada of the organization as recorded with the Minister;
(b) the registration number assigned by the Minister to the organization;
(c) the serial number of the receipt;
(d) the place or locality where the receipt was issued;
(e) where the donation is a cash donation, the day on which or the year during which the donation was received;
(e.1) where the donation is a gift of property other than cash
(i) the day on which the donation was received,
(ii) a brief description of the property, and
(iii) the name and address of the appraiser of the property if an appraisal is done;
(f) the day on which the receipt was issued where that day differs from the day referred to in paragraph (e) or (e.1);
(g) the name and address of the donor including, in the case of an individual, his first name and initial;
(h) the amount that is
(i) the amount of a cash donation, or
(ii) where the donation is a gift of property other than cash, the amount that is the fair market value of the property at the time that the gift was made; and
(i) the signature, as provided in subsection (2) or (3), of a responsible individual who has been authorized by the organization to acknowledge donations.
[15] The requirements of this Regulation are specific. If a cash donation is made one day, and the receipt is issued on a different day, the dates of the receipt must be shown, and either the year in which or day on which the donation was made must also be shown. The Bentolilas' receipts are deficient in this regard. Even if I were to accept that the receipts appropriately identified the correct year of the donation, I am left without sufficient proof that the receipt is correctly dated at the time of issuance. I cannot, under such circumstances, allow the Bentolilas' reliance on such charitable receipts. I make this decision without reaching any conclusion as to how much the Bentolilas donated. They were not prepared to testify and they must appreciate the difficulty that causes for a finder of fact. I wish to be clear, however, that the denial of the charitable donation casts no dispersion on their conduct; rather, it is a recognition that they were caught up in a fraudulent scheme propagated by others. This leads to my consideration of two remaining issues.
[16] First, in connection with Mr. Bentolila's 1993 taxation year, the reassessment was dated October 4, 2000, more than three years later than the date of mailing of the original assessment on May 27, 1994. It is, therefore, necessary for the Respondent to rely on paragraph 152(4)(a) of the Act, which reads:
152(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer's normal reassessment period in respect of the year only if
(a) the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or
(ii) has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year; or
...
[17] Respondent's counsel directed me to Nesbitt v. The Queen, 96 DTC 6588, and specifically the following comments from Justice Strayer:
... a wrong calculation, based on accurately reported facts, could not itself be a misrepresentation of fact. The appellant conceded that the error in his return, however characterized, was a careless one for which he was responsible even if the miscalculation was the work of his accountant.
I agree with the reasoning and the conclusions of the learned trial judge, on the issues before him, that there was a misrepresentation by the appellant for which the latter was responsible.
...
... It appears to me that one purpose of subsection 152(4) is to promote careful and accurate completion of income tax returns. Whether or not there is misrepresentation through neglect or carelessness in the completion of a return is determinable at the time the return is filed. A misrepresentation has occurred if there is an incorrect statement on the return form, at least one that is material to the purposes of the return and to any future reassessment. It remains a misrepresentation even if the Minister could or does, by a careful analysis of the supporting material, perceive the error on the return form. It would undermine the self-reporting nature of the tax system if taxpayers could be careless in the completion of returns while providing accurate basic data in working papers, on the chance that the Minister would not find the error but, if he did within four years, the worst consequence would be a correct reassessment at that time.
[18] The circumstances of the Nesbitt case are distinguishable from the facts before me. In Nesbitt, the Appellant acknowledged the carelessness of the error in his return. This fits squarely within the contemplation of paragraph 152(4)(a). Mr. Bentolila has made no such admission: he has made no admission at all as he did not testify. The Respondent wants me to draw a negative inference from this, as well as from the very circumstances of Rabbi Edery's fraudulent donation program, to conclude that there was a misrepresentation, and that it was attributable to the Bentolilas neglect, carelessness or wilful default. I do find there was a misrepresentation, in that a defective receipt, as explained earlier in these reasons, was relied upon by the Bentolilas. But the evidence does not support a finding that this was a result of the Bentolilas' neglect, carelessness or wilful default; it was a result of Rabbi Edery's actions. There is insufficient evidence to support a finding that the Bentolilas should have been alerted to a problem with donations to a registered charity, with which they had dealt for many years. Indeed, hundreds of thousands of dollars were paid to the charities over the years. To find neglect, carelessness or wilful default requires a finding of the Bentolilas' knowledge and intent, which in these circumstances, I am not prepared to do simply by inference from their lack of testimony. The Respondent cannot in this case avail himself of subsection 152(4) to extend the normal reassessment period. Mr. Bentolila's appeal is allowed for 1993 and the assessment is quashed.
[19] Finally, with respect to the penalties imposed pursuant to subsection 163(2), it is for the Respondent to prove that the Bentolilas knowingly or under circumstances amounting to gross negligence, made, participated in or assented to or acquiesced in the making of a false statement in a return. Respondent's counsel cited the Federal Court of Appeal decision of Côté v. The Queen, 2000 DTC 6615 (Fr.), where the taxpayer received receipts for amounts four times higher than the prices of the works of art they just acquired. The Federal Court of Appeal agreed with the trial judge that this amounted to extreme recklessness or at least gross negligence. This, however, attaches a knowledge to the taxpayer that has not been proven in this case. The Bentolilas donated some money to Rabbi Edery. It has not been proven by the Respondent that the amount of the receipts exceeded that donation. It therefore follows that this cannot be the false statement triggering a subsection 163(2) penalty. It has been shown the receipts were defective due to inappropriate dating, but having found that such a misrepresentation was not attributable to the Bentolilas' neglect or carelessness for purposes of subsection 152(4), I am certainly not about to find that meets the more stringent standard imposed under subsection 163(2). The penalties have not been properly assessed.
[20] The appeals are allowed and the reassessments referred back to the Minister for reconsideration on the basis that:
a) the appeal of Mr. Bentolila' 1993 taxation year is allowed on the basis that the assessment is quashed; and
b) the Bentolilas's appeals against penalties imposed pursuant to subsection 163(2) are allowed.
Signed at Ottawa, Canada, this 17th day of May, 2002.
"C.J. Miller"
J.T.C.C.
COURT FILES NOS.: 2001-4324(IT)I and 2001-4341(IT)I
STYLE OF CAUSE: Andre D. Bentolila and The Queen
Lise Bentolila and The Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: May 9, 2002
REASONS FOR JUDGMENT BY: The Honourable Campbell J. Miller
DATE OF JUDGMENT: May 17, 2002
APPEARANCES:
Agent for the Appellants: William Bentolila
Counsel for the Respondent: Gordon Bourgard, Q.C.
COUNSEL OF RECORD:
For the Appellants:
Name: N/A
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-4324(IT)I
BETWEEN:
ANDRE D. BENTOLILA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Lise Bentolila (2001-4341(IT)I) at Ottawa, Ontario on May 9, 2002, by
the Honourable Judge Campbell J. Miller
Appearances
Agent for the Appellant: William Bentolila
Counsel for the Respondent: Gordon Bourgard, Q.C.
JUDGMENT
The appeal from the assessment of tax made under the Income Tax Act for the 1993 taxation year is allowed and referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the assessment is quashed.
The appeals from assessments of tax made under the Act for the 1996 and 1997 taxation years are allowed and the assessments are referred back to the Minister for reconsideration and reassessment on the basis that the Appellant is not liable for penalties imposed pursuant to subsection 163(2).
Signed at Ottawa, Canada, this 17th day of May, 2002.
|
"C.J. Miller" |
J.T.C.C.
2001-4341(IT)I
BETWEEN:
LISE BENTOLILA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Andre D. Bentolila (2001-4324(IT)I) at Ottawa, Ontario on May 9, 2002, by
the Honourable Judge Campbell J. Miller
Appearances
Agent for the Appellant: William Bentolila
Counsel for the Respondent: Gordon Bourgard, Q.C.
JUDGMENT
The appeals from assessments of tax made under the Income Tax Act for the 1996, 1997 and 1998 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is not liable for penalties imposed pursuant to subsection 163(2).
Signed at Ottawa, Canada, this 17th day of May, 2002.
|
"C.J. Miller" |
J.T.C.C.