Tax Court of Canada Judgments

Docket: 2002-620(IT)I

BETWEEN:

JACOB COHEN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on common evidence with the appeals of Laurence Cohen

(2002-622(IT)I) on February 7, 2003, at Toronto, Ontario.

Before: The Honourable Judge E.A. Bowie
Appearances:
Agent for the Appellant:	Isaac Cohen
Counsel for the Respondent:	Joel Oliphant and Michael Appavoo

____________________________________________________________________

JUDGMENT

The appeal from the assessment of tax made under the Income Tax Act for the 1996 taxation year is allowed, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to non-refundable tax credits with respect to charitable donations made to Or Hamaarav Sephardic Congregation and Mincha Gedolah Synagogue as claimed; and to delete the penalties.

Signed at Ottawa, Canada, this 18th day of March, 2003.

"E.A. Bowie"

J.T.C.C.

Docket: 2002-622(IT)I

BETWEEN:

LAURENCE COHEN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard on common evidence with the appeal of Jacob Cohen

(2002-620(IT)I) on February 7, 2003, at Toronto, Ontario.

Before: The Honourable Judge E.A. Bowie
Appearances:
Agent for the Appellant:	Isaac Cohen
Counsel for the Respondent:	Joel Oliphant and Michael Appavoo

____________________________________________________________________

JUDGMENT

The appeals from assessments of tax made under the Income Tax Act for the 1994 and 1995 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 entitled to non-refundable tax credits with respect to charitable donations made to Or Hamaarav Sephardic Congregation and Abarbanel S. Learning Centre as claimed in each year; and to delete the penalties.

Signed at Ottawa, Canada, this 18th day of March, 2003.

"E.A. Bowie"

J.T.C.C.

Citation: 2003TCC138

Date: 20030318

Docket: 2002-620(IT)I Docket: 2002-622(IT)I

BETWEEN:

JACOB COHEN, and

LAURENCE COHEN,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Bowie J.

[1]      Jacob Cohen has appealed from reassessments for income tax for the 1996 and 1997 taxation years. Laurence Cohen has appealed from reassessments for the taxation years 1994 and 1995. In all these appeals, the only issue raised is whether the Appellants in fact made certain charitable donations for which the Minister of National Revenue (the Minister) alleges that they claimed non-refundable tax credits in the years in issue.

[2]      Of the four reassessments, only that of Jacob Cohen for 1997 was made within the normal reassessment period, as that expression is used in section 152 of the Income Tax Act (the Act). The parties all agreed that the appeals of Laurence Cohen and the appeal of Jacob Cohen for 1996 should be heard together on common evidence. They also agreed that I should adjourn the appeal of Jacob Cohen for 1997, and I have done so. The Respondent has the burden of proving that the Minister was authorized by paragraph 152(4)(a) of the Act to make the remaining reassessments. At the relevant time, the applicable part read:

152(4) Subject to subsection (5), the Minister may at any time assess 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, and may

(a)         at any time, if 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, ...

The misrepresentations pleaded and relied on by the Respondent in respect of the appeals of both Appellants consist of claiming non-refundable tax credits for charitable gifts in excess of the amount actually donated, and supporting those claims with receipts which are said to have been issued for inflated amounts. The Respondent has described the alleged scheme in subparagraphs 6(e) to (l) of the Reply to the Notice of Appeal in the case of Jacob Cohen.

6.          In so assessing the Appellant, the Minister made the following assumptions of fact:

            ...

(e)         on March 29, 2001, Rabbi Leon Edery was convicted for issuing false receipts in a tax-evasion scheme (the "scheme") involving Or Hamaarav, Abarbanel S. Learning Centre ("Arbanel") and Gedolah;

(f)          Edery was the only individual who had been authorized by the registered organizations to acknowledge donations;

(g)         a tax preparer and some other individuals acting as agents for Edery also participated in the scheme as intermediaries;

(h)         in the scheme, donors "purchased" receipts for 10-20% of their face value. These purchases were made either by giving cash for the discounted amount or by giving a certified cheque for the entire face value of the charitable donation receipt and receiving 90% of the face value back in cash;

(i)          many of the receipts issued by the registered organizations were backdated so that the receipts are false as to both amount and date;

(j)          in the 1996 and 1997 taxation years the Appellant made payments in the amounts of $742 and $1,634 respectively to other bona fide charitable organizations;

(k)         the Appellant did not make donations to Or Hamaarav in the 1996 taxation year, as recorded in the fraudulent receipt filed by the Appellant in support of his claim for charitable donations in that year;

(l)          the Appellant did not make donations to Gedolah in the 1998 taxation year, as recorded in the fraudulent receipt filed by the Appellant in support of his claim for charitable donations in the 1997 taxation year;

Other than differences in the amounts involved, essentially the same allegations are made in the case of Laurence Cohen.

[3]      According to the Replies filed by the Respondent, the Minister also assessed penalties against both taxpayers, although there is no evidence of that before me.

[4]      Rabbi Leon Edery gave evidence, describing the scheme that he had developed to cope with an exigent need for funds to support the three charities in question. In its essential elements, it was much as described in the Respondent's pleadings. It should be said, however, that the money that Rabbi Edery collected in this scheme did go to support the charitable works that he described, and that he rationalized his activity on the basis that, unlike many charities, his did not pay a large percentage of the money donated for administrative costs connected with the raising of funds.

[5]      Rabbi Edery testified specifically as to the circumstances in which he issued 17 receipts, 15 of them on behalf of Or Hamaarav Sephardic Congregation, one on behalf of Abarbanel S. Learning Centre, and another on behalf of Mincha Gedolah Synagogue. All of these are registered charities as to which Rabbi Edery was, at the relevant time, the only person authorized to sign receipts for donations. Thirteen of those receipts acknowledge gifts made by Jacob Cohen, and four acknowledge gifts made by Laurence Cohen. Particulars of them are set out in Appendix "A" to these Reasons. His evidence was that he signed and issued these receipts for ten times the amount of money that was gifted, that the gifted money was brought to him by Meir Cohen, the father of Jacob Cohen and father-in-law of Laurence Cohen, and that he gave the receipts to Meir Cohen. Under his normal practice, he said, one-half of the money actually gifted would have gone to Meir Cohen as the go-between who brought the donations to him, but in this case Meir Cohen declined to take his usual percentage because the gifts were from family members. He also testified that he was able to refresh his memory as to these particular donations from entries in a notebook in which, he said, were recorded all the donations that he received during the period that his scheme was in operation. He said that his wife made the entries in the notebook from information that he gave to her. The book contains many entries. Some of those, on a page to which the Rabbi was referred, relate to the two Appellants, but the amounts shown against their names correspond to only 6 of the 17 receipts identified by him. I have been unable to find any other entries in the book that relate to these Appellants.

[6]      I do not find Rabbi Edery's evidence to be entirely convincing. I have no doubt that he was in the habit of issuing false receipts; he was convicted of that and served a conditional sentence in addition to paying a substantial fine. He testified that he also gave receipts that were not for inflated amounts, and that he had a list of those, but that it was not with him in court. He could not, I am sure, remember after more than five years every receipt that he issued and whether it was for a donation of the full amount or only a percentage. After examining the copy of his notebook that is Exhibit R-1, I fail to see sufficient entries, or sufficient particulars of the entries that are there, to identify all the receipts that he identified in his evidence. I have no doubt that Rabbi Edery believed that the evidence he gave was accurate. However, I am not convinced that his recall, even with the notebook before him, was sufficiently complete and accurate to establish that all of the receipts he identified were issued for amounts ten times the amount actually donated.

[7]      There is another reason that these appeals must succeed, however. As I have said, the Minister's right to make the reassessments under appeal depends upon there having been misrepresentation by each of the taxpayers, and the burden of proving those misrepresentations lies with the Respondent. At the trial, counsel for the Respondent produced a book of documents in respect of each of the Appellants. Each book was divided into four sections, two containing the copies of receipts to which I have referred, and two containing what appear to be copies of the income tax returns of the Appellants for the years under appeal. The copies of receipts were identified by Rabbi Edery, whose signature appears on them, and they were entered into evidence. The copies of income tax returns were not identified at all. The taxpayers were in the courtroom and could have been called and asked to identify the copies of their returns, but they were not. No affidavit of an officer of Canada Customs and Revenue Agency having charge of the returns was tendered under subsection 244(9) of the Act. The returns were not entered in evidence, and so there is no evidence before me to establish that any representation was made to the Minister by either of these Appellants as to gifts to the charities in question, or for that matter as to anything at all. Absent any evidence as to the alleged misrepresentations, the appeals must be allowed and the original assessments restored.

Signed at Ottawa, Canada, this 18th day of March, 2003.

"E.A. Bowie"

J.T.C.C.

APPENDIX "A"

Receipts identified by Rabbi Edery:

In the appeal of Jacob Cohen

Donor	Donee	Date	Amount
Jacob Cohen	Or Hamaarav Sephardic Congregation	26 December 1996	$2,900
Jacob Cohen	Mincha Gedolah Synagogue	6 January 1998	$1,500

In the appeal or Laurence Cohen

Donor	Donee	Date	Amount
Jacob Cohen	Or Hamaarav Sephardic Congregation	26 November 1993	$400
Jacob Cohen	Abarbanel S. Learning Centre	27 December 1993	350
Laurence Cohen	Or Hamaarav Sephardic Congregation	30 April 1994	350
Laurence Cohen	Or Hamaarav Sephardic Congregation	30 June 1994	350
Jacob Cohen	Or Hamaarav Sephardic Congregation	26 July 1994	300
Laurence Cohen	Or Hamaarav Sephardic Congregation	22 September 1994	350
Laurence Cohen	Or Hamaarav Sephardic Congregation	30 December 1994	350
Jacob Cohen	Or Hamaarav Sephardic Congregation	27 December 1994	300
Jacob Cohen	Or Hamaarav Sephardic Congregation	25 January 1995	200
Jacob Cohen	Or Hamaarav Sephardic Congregation	26 July 1995	300
Jacob Cohen	Or Hamaarav Sephardic Congregation	30 June 1995	300
Jacob Cohen	Or Hamaarav Sephardic Congregation	31 May 1995	300
Jacob Cohen	Or Hamaarav Sephardic Congregation	26 April 1995	300
Jacob Cohen	Or Hamaarav Sephardic Congregation	27 March 1995	300
Jacob Cohen	Or Hamaarav Sephardic Congregation	20 February 1995	300

CITATION:

2003TCC138

COURT FILE NO.:

2002-620(IT)I and 2002-622(IT)I

STYLE OF CAUSE:

Jacob Cohen and Laurence Cohen and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

February 7, 2003

REASONS FOR JUDGMENT BY:

The Honourable Judge E.A. Bowie

DATE OF JUDGMENT:

March 18, 2003

APPEARANCES:

Agent for the Appellants:

Isaac Cohen

Counsel for the Respondent:

Joel Oliphant and Michael Appavoo

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada