BETWEEN:
and
Respondent.
____________________________________________________________________
Appeal heard on February 6 and 7, 2006, and judgment delivered orally on February 8, 2006, at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under section 227.1 of the Income Tax Act, notice of which is dated August 28, 2002, and bears number 31203, is allowed and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is liable for an amount of $114,655, and not $122,829, in accordance with section 227.1 of the Act.
The respondent is entitled to costs.
Signed at Ottawa, Canada, this 8th day of March 2006.
BETWEEN:
MOHAMMED REZA TEHRANI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] The appellant was assessed on August 28, 2002, pursuant to subsection 227(10) of the Income Tax Act ("Act") and, pursuant to section 227.1 of the Act, was held jointly and severally liable with the corporation 3111261 Canada Inc. for an amount of $122,829. This figure represents the amount of unremitted source deductions ($116,035), together with interest ($8,174), payable by the corporation (Exhibit A-13) with respect to salaries paid to its employees for the months of January to September 1998 (see reply to the notice of appeal ("Reply"), paragraph 17 j)), less an amount of $2,349 paid by the trustee in bankruptcy on that debt (see Reply, at paragraph 17 l)) to which an adjustment of $968 was made by notice of assessment dated June 8, 2001 (Exhibit I-10).
[2] In the Reply, the respondent acknowledges that the amount for which the appellant may be held jointly and severally liable with the corporation is $114,655, and not $122,829. The respondent thus acknowledges that the appellant shall not be held responsible for the interest portion, which amounts to $8,174, according to Annex A to Exhibit A-13.
[3] It is admitted that the corporation went bankrupt on November 23, 1998. The appellant alleges that he tendered his resignation as director of the corporation on September 29, 1998. He therefore submits that, pursuant to subsection 227.1(4) of the Act, he may not be held jointly and severally liable with the corporation for the corporation's debt, as he was assessed more than two years after he last ceased to be a director. The appellant also alleges that the Minister of National Revenue ("Minister") did not prove his claim within six months after the date of the assignment in bankruptcy, which he was required to do under paragraph 227.1(2)(c) of the Act.
[4] The respondent alleges that the Minister filed his proof of claim with the trustee in bankruptcy on May 6, 1999, which was within six months of the corporation's bankruptcy. She further contends that the appellant did not resign on September 29, 1998, as he argued, but rather did so between July 6, 2001, and November 5, 2001.
Proof of claim: paragraph 227.1(2)(c) of the Act
[5] Paragraph 227.1(2)(c) reads as follows:
(2) Limitations on liability. A director is not liable under subsection (1), unless
. . .
(c) the corporation has made an assignment or a receiving order has been made against it under the Bankruptcy and Insolvency Act and a claim for the amount of the corporation's liability referred to in that subsection has been proved within six months after the date of the assignment or receiving order.
[6] With respect to the proof of claim, I am satisfied that that condition was fulfilled by the respondent within the time limit prescribed in paragraph 227.1(2)(c) of the Act. The evidence disclosed that the trustee in bankruptcy retrieved all information with respect to salaries paid to the corporation's employees, including T4s issued. The T4 Summary filed as Exhibit A-14, which was signed by Mélanie Bourdon from the trustee's office on February 3, 1999, shows total unremitted deductions of $116,035. This information is taken from T4s issued for employees listed in a document sent by "M. Tehrani" on behalf of Aviron Technical Institute on January 29, 1998, to Ms. Bourdon (Exhibit I-7). An "avis d'écart concernant les retenues pour l'impôt, le Régime de pensions du Canada et l'assurance-emploi" prepared by Revenue Canada on April 30, 1999, and received by the trustee on May 6, 1999, shows the same amount: $116,035 (Exhibit A-15). That figure is reproduced in Annex B to the proof of claim dated May 6, 1999, sent by the Canada Customs and Revenue Agency ("CCRA") to the trustee, who received it on May 11, 1999 (Exhibit A-13). In my view, this proof of claim contained reasonable and reliable information as to the amount, which is supported by substantiating evidence as required by paragraph 227.1(2)(c) of the Act. The fact that the assessment of the corporation is dated November 23, 1998 (the date of the bankruptcy), but was issued only on or about May 6, 1999, according to the testimony of the agent for the CCRA, Mr. Thibault, does not have any impact on the proof of claim, contrary to what the appellant is suggesting. I agree with counsel for the respondent that the director's and the corporation's liability flows from the Act and not from the notice of assessment. The notice of assessment in itself is not crucial to the proof of claim (see Amyot et al. v. The Queen, 2006 FCA 55).
[7] The evidence is sufficient to establish that the amount at issue represents deductions withheld at source that were not remitted to the government. The amount was calculated by the trustee in bankruptcy, who had the obligation to prepare the T4 Summary form and send it to the government. The Minister then produced his proof of claim on the basis of that calculation. I find that this is sufficient evidence to prove the Minister's claim in accordance with paragraph 227.1(2)(c) of the Act.
Date of resignation as a director
[8] The relevant legislative provisions are the following:
Subsection 227.1(4) of the Act
(4) Limitation period. No action or proceedings to recover any amount payable by a director or a corporation under subsection (1) shall be commenced more than two years after the director last ceased to be a director of that corporation.
Subsections 108(1) and 108(2) of the CanadaBusiness Corporations Act ("CBC Act")
108. (1) Ceasing to hold office. - A director of a corporation ceases to hold office when the director
(a) dies or resigns;
(b) is removed in accordance with section 109; or
(c) becomes disqualified under subsection 105(1).
(2) Effective date of resignation. - A resignation of a director becomes effective at the time a written resignation is sent to the corporation, or at the time specified in the resignation, whichever is later.
[9] With respect to the date of resignation of the appellant, the CBC Act states in subsection 108(2) that a resignation of a director becomes effective at the time a written resignation is sent to the corporation. On this point, the evidence is contradictory.
[10] The appellant submits that the original of his resignation was sent to the corporation on September 29, 1998. His lawyer at the time, Mr. Fridhandler, purportedly filed with the Inspecteur général des institutions financières ("IGIF") on October 27, 1998, a "Déclaration modificative" stating that Mr. Kamal Chehab became a director of the corporation and that the appellant ceased to be a director. Mr. Fridhandler, however, acknowledged that no such original letter of resignation was to be found in the minute book. He said that it was probably in the corporate file, which most probably was returned either to Mr. Mario Colucci, the last director of the corporation according to the "Déclaration modificative" filed with the IGIF on June 8, 1999 (Exhibit A-10), or to the appellant's brother, Mehdi Tehrani, who was an employee of the corporation. However, it is worth noting that Mr. Kamal Chehab's letter of resignation as director was in the minute book (Exhibit I-3). Mr. Chehab said that this resignation letter does not accurately reflect the true situation as it is dated October 2, 1998, and he was still the sole director of the corporation on the date of the bankruptcy, as he signed the assignment in bankruptcy on November 23, 1998 (Exhibit A-12).
[11] It is a bit difficult to believe that the minute book containing the resolution presumably accepting the resignation of the appellant (Exhibit A-2) could not be made available to the trustee. Indeed, this resolution would normally have been entered in the minute book on September 29, 1998, that is, only two months before the bankruptcy. According to Mr. Fridhandler, he filed a "Déclaration modificative" with the IGIF on October 27, 1998 (Exhibit A-5), which was only one month before the assignment in bankruptcy. Furthermore, according to Mr. Chehab, it was the appellant who recommended that he file for bankruptcy. It was the appellant who dealt with the trustee (according to Exhibits I-4 and I-5 and the testimony of Mr. Chehab, who did not have any contact with the trustee apart from signing the assignment in bankruptcy under the supervision of the appellant). It was the appellant who, on November 23, 1998, signed as director of the corporation the Debtor Statement, to which was appended the corporation's final inventory listing (Exhibit I-6). It was also most probably the appellant who sent the list of employees to the trustee under the name "M. Tehrani" (Exhibit I-7).
[12] The administrator in bankruptcy, Mr. Noubar Boyadjian, testified that he asked for all the documentation, but the minute book was never given to him. Mr. Fridhandler had the minute book in his possession at trial. I find it surprising that Mr. Fridhandler, who was still in contact with the appellant at the time of the corporation's bankruptcy, did not hand over to the trustee that minute book, including the resolution accepting the appellant's resignation on September 29, 1998, as should normally have been done. Furthermore, after receiving from the CCRA on July 6, 2001, a notice requesting supporting documentation (Exhibit A-8), the appellant went to his lawyer, Mr. Fridhandler, who prepared a resignation letter that was signed at that time by the appellant. Mr. Fridhandler stated in a letter to the CCRA that this was a copy of the resignation letter dated September 29, 1998. Mr. Fridhandler did not feel it necessary to indicate that the original letter of resignation was lost nor to send a copy of the resolution in the minute book, which could have supported the claim that the appellant sent a written resignation to the corporation back in September 1998. It is true that he sent a copy of the "Déclaration modificative" that presumably had been filed with the IGIF on October 27, 1998. However, I am of the view that that document alone is not sufficient evidence that the appellant duly sent a written resignation to the corporation in September 1998, as required by subsection 108(2) of the CBC Act. The fact that two different letters of resignation (Exhibits I-1 and I-2) were presented to the CCRA add to the confusion and reinforce my view that the appellant has not shown on a balance of probabilities that he truly resigned in September 1998.
[13] In my view, the documents presented at trial by the appellant constitute self-serving post facto evidence, and they should, if they really existed in 1998, have been disclosed as soon as they were requested by the trustee or by the CCRA.
[14] I am not convinced that the appellant truly resigned on September 29, 1998. As the sole letter of resignation left was signed in 2001, the assessment made pursuant to section 227.1 of the Act on August 28, 2002, was made within the time limit prescribed in subsection 227.1(4). Since there was no other argument put forward by the appellant, he is jointly and severally liable with the corporation for a debt owed to the Minister in the amount of $114,655.
[15] The appeal is allowed only to the extent of subtracting from the amount assessed the interest portion in the amount of $8,174 to reflect the concession made by the respondent. The assessment is referred back to the Minister for reconsideration and reassessment on the basis that the appellant is liable for an amount of $114,655 in accordance with section 227.1 of the Act.
Signed at Ottawa, Canada, this 8th day of March 2006.
"Lucie Lamarre"
Lamarre J.
COURT FILE NO.: 2003-4423(IT)G
STYLE OF CAUSE: MOHAMMED REZA TEHRANI v.
THE QUEEN
PLACE OF HEARING: Montreal, Quebec
DATE OF HEARING: February 6 and 7, 2006
REASONS FOR JUDGMENT BY: The Honourable Justice Lucie Lamarre
DATE OF JUDGMENT: March 8, 2006
APPEARANCES:
|
Counsel for the Appellant: |
Aaron Rodgers |
|
Counsel for the Respondent: |
Alain Gareau |
COUNSEL OF RECORD:
Firm: Spiegel Sohmer
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada