Qit-Fer et Titane Inc. v. The Queen, 92 DTC 6071, [1992] 1 CTC 39 (FCTD), aff'd on different grounds 96 DTC 6213 (FCA)

Rouleau, J.:—For the purposes of this argument, the parties herein agree on the following facts:

1. The plaintiff was incorporated on September 24, 1957 under the laws of the province of Quebec.

2. The plaintiff operates an open-pit mine in Havre St-Pierre, where is it mining a deposit of ilmenite. After initial processing in Havre St-Pierre, the Ore is conveyed by ore tanker to the mill in Sorel. Processing of the ilmenite ore produces two major metals: ferric oxide and titanium dioxide.

3. As a secondary product, the plaintiff is also manufacturing iron powder through a smelting process involving ferric oxide.

4. The plaintiff's activity in manufacturing iron powder is a manufacturing and processing activity.

5. The plaintiff's activities in producing ferric oxide and titanium dioxide are not manufacturing and processing activities for the purposes of subparagraphs 125.1(3)(b)(v), (vi) and (vi.1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

6. The profits generated by the sales of ferric oxide and titanium are treated for the purposes of the Act as resource profits, and accordingly the plaintiff deducted the amount of $8,711,000 as a resource allowance.

7. The plaintiff's gross receipts from all its active businesses carried on in Canada totalled $258,787,123 for the 1982 taxation year, distributed as follows:

8. During the 1982 taxation year, iron powder sales accounted for 7.14 per cent of the plaintiffs gross receipts from all of its active businesses.

9. In calculating its income for the 1982 taxation year, the plaintiff claimed, as a deduction from corporate income tax, manufacturing and processing profits in the amount of $53,311, or six per cent of the lesser of:

manufacturing and processing profits

or	$2,951,433
taxable income	$ 888,524

10. The defendant refused the said deduction on the basis that the plaintiff did not fulfil the ten per cent rule set out in subparagraph 125.1(3)(b)(x) of the Act, since the sales applicable to the manufacturing and processing activities, in this case iron powder, accounted for less than ten per cent of the plaintiffs gross receipts from all of its active businesses carried on in Canada.

11. The plaintiff, for its part, claims that it fulfils the ten per cent rule set out in subparagraph 125.1(3)(b)(x) on the basis that sales of ferric oxide and titanium dioxide should be included in the calculation of sales applicable to manufacturing and processing activities.

Issue

The instant case revolves around the interpretation of clause 125.1(3)(b)(x)(A) of the Income Tax Act. The clause in question provides:

(x) any manufacturing or processing of goods for sale or lease, if, for any taxation year of a corporation in respect of which the expression is being applied, less than 10% of its gross revenue from all active businesses carried on in Canada was from

(A) the selling or leasing of goods manufactured or processed in Canada by it, and . . .

The issue before this Court is the following: Do the words "the selling . . . of goods manufactured or processed in Canada" concern ferric oxide and titanium dioxide as well as iron powder, as the plaintiff claims, or only iron powder, as the Minister of Revenue claims?

The plaintiff submits that the expression "manufactured or processed" in this clause must be given its normal and grammatical meaning and should not be restricted by the definition of the expression" manufacturing or processing" stipulated in paragraph 125.1(3)(b).

In support of its submission, it notes the decision in Coca-Cola Ltd. v. D./M.N.R., C.&E., [1984] C.T.C. 75, 84 D.T.C. 6081, in which the Court put the limits imposed by the Act in clear perspective. In that case, the definition of the expression "manufacturer or producer" in subsection 2(1) of the Excise Tax Act had been amended, adding a paragraph (f) that expanded its scope. The Minister claimed—on the grounds, apparently, that these were parts of speech and grammatical forms of the same word within the meaning of subsection 33(3) of the Interpretation Act—that the expression manufacture or production" should likewise be given a more expanded meaning in order to reflect the amendment made thereby to the definition of" manufacturer or producer” by the addition of paragraph (f). The Federal Court of Appeal refused to entertain this argument based, it appears (since there is no explicit reference to it), on the Interpretation Act. At pages 79-80 (D.T.C. 6084-85) of the judgment, the Court states that expressions such as “ manufacture or production” could be found elsewhere in the Act in different contexts and for differing purposes and that, to this extent, it was wrong to try to interpret them by reference to the expression ” manufacturer or producer" as defined in section 2 of the Act. In so doing, the Court also seems to infer that "manufacture or production” were not in themselves parts of speech and grammatical forms of “ manufacturer or producer", just as we submit here that the expression “manufactured or processed” is not a part of speech or grammatical form of the expression ‘manufacturing or processing”.

The Court concluded that expressions such as" manufacture or production” could be found elsewhere in the Act in different contexts and for different purposes and that, to this extent, it would be wrong to try to interpret them by reference to the expression" manufacturer or producer" as defined in section 2 of the Act.

It would be appropriate to make one distinction. In the case at hand, the words “ manufacturing or processing" and "manufactured or processed" are found in the same section of the Act and are therefore used in the same context. It is possible to conclude that an activity that is expressly excluded from the definition of the expression "manufacturing or processing" must necessarily be excluded from the definition that is given to the expression “manufactured or processed" in the same section.

The plaintiff cites as well the decision Chibougamau Lumber Ltée v. D./ M.R. Quebec, [1976] C.A. 166, in which, at pages 168-69, Crête, J. explains that any ambiguity should be resolved in favour of the taxpayer.

The defendant, for its part, claims that the definitions in paragraph 125.1(3)(b) apply in the construction of section 125.1. To justify its claim, the defendant invokes the words of MacGuigan, J.A. in the Federal Court of Appeal judgment in Lor-Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79, 85 D.T.C. 5310, where he concludes, at page 83 (D.T.C. 5313): "The only principle of interpretation now recognized is a words-in-total-context approach with a view to determining the object and spirit of the taxing provisions".

During the taxation year in question, 1982, taxation statutes were as a general principle construed strictly or restrictively. In case of doubt as to the interpretation of certain words, the interpretation that favoured the taxpayer was adopted. This principle was enunciated in Partington v. Attorney-General (1869), L.R. 4 H.L. 100, 48 T.C. 14 and Fasken v. M.N.R., [1948] C.T.C. 265, 49 D.T.C. 491.

More recently, the courts have tended to favour a less restrictive approach in construing tax legislation. The law has changed and strict construction is now out of date. Estey, J. enunciated the modern approach in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305, at page 316 (D.T.C. 6323, S.C.R. 578): "Courts today apply to this statute the plain meaning rule, but in a substantive sense so that if a taxpayer is within the spirit of the charge, he may be held liable.”

While not directing his observations exclusively to taxing statutes, the learned author of Construction of Statutes (2nd ed. 1983), at page 87, E.A. Dreidger, put the modern rule succinctly:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their entire grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

Pursuant to the preceding analysis, it is obvious that the law with respect to the construction of taxation statutes now follows the Lor-Wes case, supra, which upholds the principles set out in the Stubart case, and the entire context must therefore be considered.

The entire context in the instant case is section 125.1. I am not convinced that we should apply a mere reading of the words "manufactured or processed", which are found in subparagraph 125.1(3)(b)(x) of the Act, and not the definition given for the expression "manufacturing or processing”.

The parties agree that the plaintiff's operations, which consist of the production of ferric oxide and titanium dioxide, are among the group of activities that are expressly excluded from the definition of “manufacturing or processing" for the purposes of subparagraphs 125.1 (3)(b)(v), (vi) and (vi.1) of the Act. I must therefore conclude that there is no basis for invoking a mere reading of the words "manufactured or processed" in subparagraph 125.1(3)(b)(x), and saying that the sales of ferric oxide and titanium dioxide should be included for the purposes of calculation of the ten per cent rule.

It would be more logical to interpret "manufacturing or processing" by a mere reading of the words when the activity in question does not fall under one of the exclusions. Having determined that the plaintiffs operation is covered by the exclusions, it is not necessary to construe the words“ manufactured or processed".

Section 15 of the Interpretation Act tends to support this interpretation. Teitelbaum, J. studied section 15 in Androwich v. Canada, [1990] 1 C.T.C. 78, 90 D.T.C. 6084, at page 81 (D.T.C. 6086):

Where a term is defined in a particular statute, as "earned income" is defined in the ITA, that definition prevails over its ordinary or dictionary definition (the Interpretation Act, R.S.C. 1985, c. 1-21, s. 15(1)).

15.(1) Definitions or rules of interpretation in an enactment apply to all the provisions of the enactment, including the provisions that contain those definitions or rules of interpretation.

I am in agreement with the approach taken by Teitelbaum, J., and I affirm this interpretation of section 15 of the Interpretation Act; it must be applied in the instant case.

Since the sales of ferric oxide and titanium dioxide are excluded by subparagraphs 125.1(3)(b)(v), (vi) and (vi .1), it therefore follows that these sales are excluded from the ten per cent rule set out in subparagraph 125.1 (3)(b)(x).

The plaintiff submits, in the alternative, that it is not even necessary in this case to resort to the definition of the expression "manufacturing or processing" in paragraph 125.1 (3)(b) of the Act, and that the statutory provisions can lead us to conclude that the definition is irrelevant.

It claims that subsection 125.1(1) allows a corporation a deduction on its "Canadian manufacturing and processing profits’, an expression defined in paragraph 125.1(3(a), which refers to its active business income determined under rules prescribed for that purpose, i.e., in Part XII of the Regulations. Scrupulously hewing to the route indicated by these statutory provisions, there is no need at any point to refer to the definition.

I reject this submission. Professor Pierre-André Côté, in his book Interprétation des Lois (Les Editions Blais Inc.) at pages 228-30, writes:

[Translation]

In reading a statute, one must also presume that each word, phrase, clause, and subsection has been drafted deliberately in order to produce a particular result. The legislature is sparing in its language: it does not speak in order to say nothing.

I therefore conclude that Parliament drafted paragraph 125.1(3)(b) to qualify 125.1(3)(a), and that if it were unnecessary to consider the definition, Parliament would surely have eliminated it.

Accordingly, I dismiss the plaintiff's action and award costs to the defendant.

Appeal dismissed.