SENSATIONAL CASE IN CHRISTCHURCH.

Gisborne Times, Volume XXVIII, Issue 2749, 2 March 1910, Page 5

SENSATIONAL CASE IN CHRISTCHURCH.

FRAUD ALLEGED BY INCOME TAX DEPARTMENT.

AMERICAN TRUST METHODS

SERIOUS CHARGE LAID AGAINST EIRM OF BOWRON BROS,

rPuu Press Association.] CHRISTOHURCiH, March 1. The charges against 'William and George Bowron and G. J. Smith, trading as Bowron Bros., of knowingly and wilfully making false returns in relar tion to the income-' of the firm, and so evading the payment of full taxation, was called at the Magistrate’s Court this morning. Mr. Stringer, K.C., prosecuted. Mr. Skerrett., K.C., with him Mr. Anthony, appeared l for the defence. Mr. H. W. Bishop, S.M., was on the Bench. Mr. Skerrett at once raised the question whether the Magistrate had jurisdiction, to hear the case. The information was laid under section 100 of the Land and Income Tax Act; 'providing that a. case might he brought only within three years after the date of the alleged offence.,,The date of the offence now alleged was November 0, 1906, and the information was sworn on November 5,1909, but the information was not lodged with the Clerk of the Court at Wellington until November 8. Mr. Skerrett contended-that the first real application for the issue of a summons was made at Christchurch, after January 13, and that the three years’ bar to the action therefore operated. If a Magistrate assumed jurisdiction the provision restricting the time for laying an information would be a travesty.

Mr. Stringer argued that there wore no authorities to support the view of the defence.

The Magistrate asked whether Mr. Stringer contended that an information could be held over indefinitely at the will of one of the parties. Mr. Stringer replied that lie did not, but desired to show that there was a difference between such -a case and a genuine proceeding on an information. The information had been laid under special authority from the Government by Mr. Tyers, Inspector under the Act, within the time limit-, and he had -made the request for delay. He quoted the case Simcocks v. Harmsworth to show that when a summons was issued 13 months after the information was laid the Court had held the delay did not affect the validity of the summons. The Magistrate said the point was new to him, but in the absence of direct 'authority he did not think he would be justified in declining jurisdiction. He supposed Mr. Skerrett would ultimately test the soundness of the decision, and 'would suggest that an authoritative opinion be obtained speedily. The prohibition would lie at any part of the case if the validity of the position were proved to be unsound. THE CASE FOR THE CROWN.

Mr. Stringer then opened the case. He said that a return, furnished by Bowron Bros, showed their income for ended September 30, 1905. as £18,836, whereas the firm’s audited balance-sheet showed iiicreased after adjustment to £64,97 . The return was, he believed in the .handwriting of G. J. Smith. It was difficult to believe that the discrepancy was tne result of ignorance of the true position. In the balance-sheet the value of .stock was set down at £89,779, in return at £72,562; bad debts, £384 in the balance-sheet-, £227 in the return ; wages £IOOO in the balancesheet, £2020 in the return. Taken over all there was an under-estimation of about- £38,000. Tyers had commenced an investigation of the firm’s affairs two years ago. G. J. Smith had told him the firm had issued no balancesheet till 1907, when the company was formed, and had kept no profit and loss accounts. Tyers had gone into the hooks, and his figures had been checked by Modlin, who had audited the firm’s accounts. In the course of discussion of the accuracy of these figures, Modlin had surprised Tyers by producing a balance-sheet for 1905, although Smith had said there were no balance-sheets prior to 1907. Smith said he had overlooked the fact that a balance-sheet had been prepared in 1905. Then Tyers found that sheets had been prepared every j-ear since IS9S to 1906. Mr. Stringer submitted that there had been MISREPRESENTATION ALL ALONG THE LINE since 189 S.

Mr Skerrett objected. Matters more tlum three months prior to the date of 11 1 o alleged olfenee could not be raised. Mr. Stringer said he would deter discussion of the details. He would take the prospectus prepared in anticipation of the flotation of an English company, giving certified returns for the veal’s 1902, .1903, 1901. The returns furnished to the Department- in December, 1901. showed a profit of £10,395’; Modlin’s balance-sheet showed a profit of £22,055. For the next year the return gave an income of £12.360, while, the balance-sheet showed £20,533. He contended that in the face of this bal-ance-sheet the returns could not be justified. In July, 1907, a company was formed to take over the business, when surplus assets over liabilities were shown as £208,500, together until £IOB,252 due by Bowron Bros, London, a,nd reserves amounting to £30,000, the latter amounts being retained by the partners. Thus in 1907 Bowron Bros, and Smith had accumulated £208,500, and as much more ns retained securities would realise. In 1901 tlieir capital was £87,407, and the'- had returned their profits up to 1907 as £56,303. On malt’’ minor adjustments the capital bv 1907 would amount to £151,710. The partners’ own drawings and other payments were £60,206, so that the capital according to these returns would have been £91.506. whereas the actual figures were £208,800. _ By another method Tyers . d arrived at ‘217.441 as the capital in 1907, approximatte" closely to til© actual capital shown in the balance-sheet. Ho. could riot ascertain that the allegedfibad debt of £IOB,OOO due by Bowron Bros., London, affected the' figures before the Court. This debt was due to transactions extending over a series of years, and said te'» be surplus moneys which should have been remitted to Now Zealand. Mr. Skerrett: Does* mv friend Slight a firm should pay on £IOB,OOO which it never received? Mr. Stringer: Certainly, if the debt is not claimed to be. bad. .In return, the Crown challenged the bona- fines of this debt alleged to bo bad. Either it was money invested at Home or money <rifted*at Home- and not in the nature of a- debt at all. In October last Smith had gone to Wellington and seen tlio Commissioner of Taxes. He knew J.Vers was claiming that income had been paid short on something like £290.000, and had handed in a statement showing short returns at £83,778, subject to.de-

ductions of £33,720. Mr Stringer mentioned that, a letter was sent to the Commissioner by Smith explaining the short returns. Mr. Stringer, concluding. said he could find no reliable explanation of the discrejiancies, but only excuses, and in the interest of commercial morality he hoped Bowron Bros, would be able to satisfy the Court that false returns had not wilfully been made.

THE EVIDENCE. Wni. Maurice Tyers, Inspector of Land and Income Tax Department, stated that the firm’s business was transformed into a limited liability company on July 31st, 1907, and all stock-sheets prior to that date fiad been destroyed. He was informed that no balance-sheets were available, so witness had to start on the books. Subsequently witness made interim reports to the Commissioner about the middle of August. Witness made his provisional assessment for two years ending October, 1907. He left these with Smith, and suggested that the figures should be checked. There was Rucin an enormous discrepancy between his figures and the returns that he thought they should be looked into. The discrepancy was roughly about £41,000. Their return for 1906 showed £II,OOO odd, and his figures showed £68,000. For ton months ending July, 1907, th© return showed a loss of £SOOO odd, and his figures showed a profit of £25,000 odd. At the time he put the following questions to Smith and obtained replies:— Are the ledgers kept by Goodsir the only ones? Yes. Was there no private ledger? No; none. Was there no profit and loss account before September, 1908?

No; none. Was there no balance-sheet before July 31st, 1907? No; none. Have all the stock-sheets prior to July 31st, 1907, been destroyed? Yes. How wore the returns prepared ? Got expenses from the accountant and filled in purchases, sales and stocks myself. In connection with the 1905 accounts Modlin (auditor of the company) explained that £2OOO should be charged as portion of a bad debt due from Bowron Bros, London, amounting to £IOB,252. Witness saw Geo. Bowron and asked him:—

Ha s Geo. Bowron, William Bowron, or Smith, either- separately or in any capacity together, any interest in the firm of Bowron Bros., London? None.

Were any businesslike steps taken to collect the balance from time to time?

Witness subsequently pointed out to Modlin it wa s ridiculous to claim as deduction any portion of the £IOB,OOO which had not accrued in two years and ten months ending July 31st, 1907, which amounted in round figures to £17,000. Later Modlin gave witness a balance-sheet up to 30th September, 1905, the existence of which he had never dreamt. The balance-sheet showed that the income for 1902 was £22,751, whilst the return given to the Department showed £7429. For 1903 the balance-sheet showed £22,085, and the return £10,395; for 1904 the ball a nee-sheet showed £20,533, and the return showed £12,860_; for 1905 the bal-ance-sheet showed £52,418, and the return showed £15,836. In all cases the differences were against the Department. Oil September 23rd last witness suggested to Modlin without prejudice that the firm should make full restitution. Modlin was to consult the firm, but nothing came of the matter. Later witness suggested that the firm should pay £IO,OOO in respect of back taxation short paid, and negotiations took place between the Commissioner and Smith, but no settlement was come to. The witness was still under examination. when the Court adjourned till tomorrow.