Department of Inland Revenue v Kumar [2018] NZDC 24405 (14 November 2018)

Last Updated: 12 October 2023

EDITORIAL NOTE: CHANGES MADE TO THIS JUDGMENT APPEAR IN [SQUARE BRACKETS]

IN THE DISTRICT COURT AT HASTINGS I TE KŌTI-Ā-ROHE KI HERETAUNGA

CRI-2017-020-003369

[2018] NZDC 24405

DEPARTMENT OF INLAND REVENUE

Prosecutor v

RAKESH KUMAR NALINI KUMAR Defendant

Hearing:	14 November 2018
Appearances:	A Bryant for the Prosecutor R Scott for the Defendants
Judgment:	14 November 2018

NOTES OF JUDGE M A COURTNEY ON SENTENCING

[1] Mr and Mrs Kumar, you both appear for sentence today on charges of evading tax liabilities with regard to companies that you were directors of and shareholders in. For Mr Kumar those charges relate to a period from June 2009 until September 2015 where you evaded assessment and/or payment of GST and Income Tax for Jano Dairy Limited, for the period June 2010 until September 2015 for Red Chilli Limited and from August 2011 until September 2016 for RM Family Limited. The total tax that was evaded through your actions was $833,294.99.

[2] As far as those charges are concerned they involved you knowingly making those returns and involved you taking steps to make payments in cash to various

DEPARTMENT OF INLAND REVENUE v RAKESH KUMAR [2018] NZDC 24405 [14 November 2018]

people. Effectively failing to completely file the returns required of those companies to provide for the appropriate tax to be paid. You have two previous convictions back in 1992 of receiving but I do not place any weight on those convictions when I come to deal with the sentence as far as you are concerned.

[3] The pre-sentence report that has been provided to the Court noted a number of matters. You say that the businesses in question were being run by other people; you had appointed a manager for the restaurant in Napier; you had your brother overlooking businesses in Tauranga. You say you trusted them to run the day-to-day operations and you say you had little to no oversight of the businesses. That is a matter that is not in any way a mitigating factor. That is your responsibility as a director. It is the responsibility of all directors to ensure the affairs of their companies are being operated properly and lawfully.

[4] The report therefore says that you take little responsibility for your actions, attributing the blame to others. The report notes there are no identified rehabilitative needs. Whilst you have expressed a desire to repay the money, which you have in part, you have still taken no ownership of the offending apart from the fact you have pleaded guilty, but you attempt to blame others. For those reasons the report recommends a sentence of imprisonment.

[5] Counsel for the IRD and your own counsel have filed significant submissions. Ms Bryant has just gone through the principles and purposes of sentencing set out in the Sentencing Act 2002 and I will take account of those in determining the sentence. To me the most significant factor relevant here is deterring you and others from committing the same or similar offences. These are offences that go against the heart of the income tax regime, which requires honesty from taxpayers. It is important that taxpayers treat their obligations equally in being honest with the Inland Revenue Department and if they do not, then a sentence which is seen as a deterrent needs to be imposed. I note that was the one purpose of sentencing which was noted by Ms Scott in her submissions as an aggravating factor.

[6] Ms Bryant has also referred to the aggravating factors which are relevant from the Inland Revenue Department’s point of view and I accept those to be the case. The

Court needs to determine an appropriate start sentence as far as these charges are concerned. Both counsel note there is no tariff decision that is relevant to this sort of offending and each case needs to be decided on its own facts, but of course having regard to decisions in other cases is necessary so there is consistency amongst the sentences that are imposed.

[7] The cases in particular that are referred to by the Commissioner of Inland Revenue in their submissions stress the fact that the primary purpose of sentencing in these cases is to give weight to deterrence, denunciation and accountability. That was noted by the Court of Appeal in Zaheed v R.1 The Court of Appeal in R v Adams the Court endorsed the statement that defrauding the Inland Revenue is not a victimless crime but a criminal activity which ultimately affects the whole of society and requires a sentence combining accountability with denunciation.2 In R v Easton the Court said that such offending has been labelled as straight theft from the community and this type of offending involving large scale defalcations would ordinarily attract a sentence of imprisonment as a starting point.3

[8] In James v R the Court of Appeal also noted that an effective tax system which is seen to be applying to everyone according to his financial position is essential to the proper functioning of the state and of society.4 It is also essential to the level of trust and confidence which citizens have in their state and its institutions. Nothing is more corrosive of that than the sight of people apparently earning high income and evading payment of tax.

[9] Finally, in the Commissioner of Inland Revenue v Brownlee it was noted that when dealing with Inland Revenue cases the gravity of the offending must be viewed through the concept of voluntary compliance and if that concept is allowed to be eroded then the Commissioner’s obligation to maximise the recovery of tax will be seriously damaged.5

1 Zaheed v R [2010] NZCA 573, (2010) 25 NZTC 25, 140.

2 R v Adams (2006) 22 NZTC 19, 872.

3 R v Easton [2013] NZCA 677, (2013) 26 NZTC 21-057.

4 James v R [2010] NZCA 206.

5 Commissioner of Inland Revenue v Brownlee, Manukau District Court, 17 March 2011, Winter DCJ.

[10] Against that background both counsel referred to a number of decisions in support of submissions for a start sentence. A number of those authorities, and in particular the ones provided by Ms Scott, refer to the number of charges the defendants in those cases faced. In some cases there have been up to 122 occasions of offending. In this case you, Mr Kumar, face three charges but those three representative charges cover offending over a period of seven years. In Mrs Kumar’s case it is one representative charge covering a period of five years. I consider the period of offending and the sum involved to be of more importance in determining a start sentence than the number of charges involved.

[11] The submissions filed by Ms Scott also referred to the amount of reparation in assessing the start sentence. As I have just said to her, whether that is taken into account as a mitigating factor relating to the offence or a personal mitigating factor, I believe it is necessary to consider when determining a start sentence the other cases which have involved no reparation before applying any discount for reparation.

[12] I want to touch briefly on the cases that have been referred to and the assistance they give me. The first of those referred to by counsel for Inland Revenue is Police v Williams and Stewart, that involved $489,000 of evaded tax over seven years.6 That involved similarly bar and restaurant activities, false returns being filed and staff being paid in cash. A start sentence in that case was some five years and three months’ imprisonment.

[13] In Inland Revenue Department v Isherwood, $603,000 of evaded tax was accumulated over some six years.7 In that case the defendant began filing returns, but then operated totally outside the tax system and returns were prepared but never filed. A start sentence in that case of five years was appropriate.

[14] In R v Wang the defendant operated several retail stores. In over four years there was tax evaded of some $1.184 million.8 A start point of four and a half years was taken by the sentencing Judge in that case. When the matter went on appeal the

6 Police v Williams and Stewart [2016] NZDC 4725..

7 Inland Revenue Department v Isherwood [2016] NZDC 21726.

8 Wang v R [2016] NZCA 56, (2016) 27 NZTC 22-043.

appellant claimed the figure which should have been taken into account in determining the appropriate start sentence should be in the region of $813,000, a figure very similar to that involving your offending. The Court of Appeal, when dealing with an appeal against sentence, noted the offending was on a grand scale and the premeditated nature of the offending involved a systemic process, a significant length of time of offending, the different types of tax involved, the breach of trust for defrauding the public purse and the personal benefit to the defendant’s more relevant aggravating features.

[15] The Court went on to note the culpability of the offending should be assessed by reference to the overall scale of the offending and not so much the precise value of the property involved. Even if the lower evasion figure of about $800,000 had been accepted it would have made no material difference on sentence. The Court noted that the actual sentence imposed by the Judge in that case was lenient and that a higher starting point was within range.

[16] The submissions filed by the defence refer mostly to end sentences which are suggested as a basis for coming to a starting sentence. Jukich v R involved offending of just over $500,000 with a two and a half year end sentence.9 Eade v Police of

$240,000 a start sentence of three and a half years.10 IRD v Bench, $400,000 with a start of 28 months. IRD v Serchan with an offending of $43,000 and an 18 month start sentence.1112 All those cases are relied on by Ms Scott to suggest a start sentence in this case of some 24 months, particularly as the number of charges here is less. I do not accept that is the appropriate way to approach the starting point in this case.

[17] I find the Court of Appeal decision in R v Wang to be of most assistance. That was large scale suppression of income by failing to declare all sales and returns. In that case four and a half years was considered lenient. The amount involved here exceeds the sums involved in both Williams and Isherwood that I have referred to, where five years or more were considered as appropriate start sentences. I consider in this case an appropriate start sentence of some four and a half years’ is appropriate.

9 Jukich v R [2012] NZCA 231.

10 Eade v Police (2009) 24 NZTC 23, 789 (HC)

11 The Inland Revenue Department v Bench [2017] DCR 573.

12 Commissioner of Inland Revenue v Serchan [2017] NZDC 17773.

[18] I turn then to the issue of reparation. I note the submissions Ms Bryant has referred to and in particular that in this case, you could have been in a position to have paid the tax in any event without having to wait until the point where you are prosecuted and charged. That said, I do believe reparation should be encouraged in these cases and accordingly it should be reflected in the sentence. As Ms Scott has said, it is rare for reparation to be given in such cases. In the case of R v Ching and Ruansook which involved repayment of $166,000 a 15 percent deduction for reparation was allowed.13 I believe that a similar allowance should be made here notwithstanding there has not been full reparation, there has been but a significant effort towards reparation, with the possibility of further reparation. Allowing that 15 percent reduction brings the matter to a sentence of some 46 months.

[19] Reference is made to good character and whilst some Courts have suggested that extended offending over a long period of time may extinguish good character I am prepared to give credit here. I have received and considered a number of references which attest to your previously good character and I allow a 10 percent reduction on the sentence to recognise that. That brings the sentence down to one of 41 months’ imprisonment.

[20] The next matter I need to give credit for is that of a guilty plea. The Inland Revenue has suggested there should be a reduction of some 20 percent. It is not apparent from the record why there has been a delay in guilty pleas, but there clearly has been discussion and negotiation. I will give you full credit for a guilty plea in this case, allowing a further 10 months credit and rounding the matter out I come to an end sentence for you of one of 30 months’ imprisonment. Given that is above the two year period, home detention is not available. I must say had it even been available I would not have considered it appropriate in this case.

[21] The issue of outstanding reparation has been raised and there is a still a figure of $483,346. It is not immediately clear to me whether you have available to you the resources to pay that sum. I note from the pre-sentence report there was only a modest weekly sum available after your weekly expenses are paid. I do not intend to impose

13 R v Ching and Ruansook [2015] NZDC 11672

further reparation in this instance and that can be left for other means to recover that reparation from you. Accordingly on each of the three charges, you are convicted and sentenced to two and a half years’ imprisonment.

[22] I turn now to Mrs Kumar, who as I say, faces that one representative charge involving $127,000 over some five years. I note there are no previous convictions as far as Mrs Kumar is concerned. I note in particular the matters she has referred to when discussing the offending with the pre-sentence report writer. Clearly, she was unaware of the liabilities which she faces for offending of this sort. She has come to New Zealand from Fiji and for a number of years worked as a horticultural supervisor. In 2009, she was diagnosed with a medical condition which prevented her continuing in that work. She then needed work and wanted to work. It was that stage Mr Kumar suggested she be made a director of the India Palace Company. I note that between 2009 and 2017 she received minimal payment from the company, $120 per week and payments of around $500 on other occasions. She has signed paperwork given to her, trusting the advice of others. As I said for Mr Kumar that does not absolve her, but I believe that she is in a vastly different position to that of Mr Kumar. She, I believe, was naively approaching this matter whereas that could not be said to be the same for Mr Kumar.

[23] She appeared genuinely remorseful to the report writer and said if she had been previously aware she would have paid the tax immediately. She has now taken the steps to do so. I note from the report that Mrs Kumar is currently working seven days a week. She has family to support and therefore a home detention sentence is recommended with reparation. Mrs Kumar described the marriage as a traditional Indian marriage. She was aware that Mr Kumar was involved in a number of companies in the Hawke's Bay and Tauranga areas but did not know details stating, “I never interfere with man’s work.” I accept that she would have been naively dealing with these matters, effectively at Mr Kumar’s insistence.

[24] The principles and purposes of sentencing are the same for Mrs Kumar as for Mr Kumar. They need to act in a deterrent way and hold the defendant accountable. In determining a start sentence the submissions from both counsel are not too far apart. The Inland Revenue Department has a lower end sentence of some 20 months; defence

has a start sentence of some 18 months. I will take 18 months as the appropriate start sentence. I will allow 15 percent deduction for full reparation of three months bringing the sentence down to one of 15 months. I will also give a 10 percent deduction for prior good character and in this case, there will be a toll on Mrs Kumar’s family. That then brings the sentence down to one of 13 and a half months’ imprisonment. Allowing the full discount for a guilty plea brings the sentence to one of 10 months’. As I have said, the Inland Revenue Department accept that home detention is an appropriate end sentence. That will allow Mrs Kumar to be able to work and support her extended family.

[25] The submissions filed for Mrs Kumar suggest community detention and community work although I note today Ms Scott appeared to be recognising that a home detention sentence is appropriate. I do not believe that community detention and community work of themselves are a necessary deterrent sentence for offending over five years involving in excess of $120,000 of tax evasion. I believe that an end of sentence of home detention and community work is appropriate.

[26] Accordingly Mrs Kumar is sentenced to home detention for a period of five months with the home detention residence being [address deleted] in Hastings. The special conditions as set out in the pre-sentence report apply. Standard post detention conditions and special post detention conditions will apply for six months after the end of that sentence. Mrs Kumar is also sentenced to 100 hours of community work.

M A Courtney District Court Judge