ABBOTT, J. (all concur) :—This is an appeal and cross-appeal from a judgment of Mr. Justice Thurlow of the Exchequer Court of Canada, which allowed in part the appellant’s appeal from income tax assessments made for its taxation years 1957 to 1963 inclusive.
The principal issue on both the appeal and cross-appeal, is the meaning to be ascribed to the phrase, ‘‘income . .. . earned in Canada from the operation of a. ship’’ found in paragraph (c) of subsection (1) of Section 10 of the Income Tax Act, R.S.C. 1952, ce. 148, and the phrase “profits which a resident . . . derives from operating ships’’ found in Article V of the Tax Convention of June 5, 1946, between Canada and the United Kingdom of Great Britain and Northern Ireland; Statutes of Canada 1946, c. 38.
This raises two questions, namely :
(1) Whether income which the appellant earned in Canada in its character as a general agent or stevedore is "" income .. . . earned in Canada from the operation of a ship’’ or "‘profits which . .-(the , (the appellant) derives from operating ships’’; and
(2) Whether income which the appellant earned in Canada in respect of servicing or stevedoring its own ships whilst in territorial waters in Canada is ‘‘income . . . earned in Canada from the operation of a ship’’ or "‘profits which . . , (the appellant) derives from operating ships’’.
Section 10(1) (c) of the Income Tax Act provides:
10. (1) There shall not be included in computing the income of a taxpayer for a taxation year
(c) the income for the year of a non-resident person earned in Canada from the operation of a ship or aircraft owned or operated by him, if the country where that person resided grants substantially similar relief for the year to a person resident in Canada.
Article V of the Canada-U.K. Tax Convention provides :
Notwithstanding the provisions of Articles III and IV, profits which a resident of one of the territories derives from operating ships or aircraft shall be exempt from tax in the other territory.
There is no serious dispute between the parties as to the relevant facts. The appellant was incorporated under the laws of the United Kingdom and has its registered office in London. It operates branch offices at various Canadian ports and its chief Canadian office is at Montreal. It is common ground that appellant is resident in the United Kingdom and is not. resident in Canada.
In Canada, the appellant carries on the business of a general agent or ship-broker and, in relation to ships owned by it, performs the duties and functions which would normally be performed by a general agent or ship-broker. Also, the appellant carries on the business of stevedoring in Canada and, in relation to some ships owned by it, performs the duties and functions which would normally be performed by a stevedore. It also performs similar services as agent, ship-broker or stevedore for ships owned by other companies, in many of which appellant, as a shareholder, holds either a majority or minority interest.
The learned trial judge held :
1. That neither Section 10(1) (c) of the Income Tax Act nor Article V of the Tax Convention exempts earnings of the appellant from managing or agency or stevedoring services which it renders in Canada to other corporations:
2. That appellant is entitled to exemption under these provisions in respect of the portions of the amounts treated as income by the Minister, which arose from entries of charges made by the branches for ‘‘agency’’ and stevedoring services to ships which were owned or chartered by the appellant and were operated in its own service.
3. That appellant is entitled to deduct, in computing its income from business carried on in Canada, that portion of general head office administration expenses properly chargeable to its operations in Canada.
Appellant appealed to this Court from the first finding and the Minister cross-appealed as to the second. There is no crossappeal from the third finding.
There is nothing that I can usefully add to the able and exhaustive reasons for judgment of Thurlow, J., with which I am in agreement, and I am content to adopt them with one minor exception. In interpreting Article V of the Canada-U.K. Tax Convention, I do not rely upon the translation of the Convention, which appears as a Schedule to the French text of the Statutes of Canada 1946, c. 38.
I would therefore dismiss the appeal and the cross-appeal with costs.
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