Optical Recording Corp. v. The Queen, 86 DTC 6465, [1986] 2 CTC 325 (FCTD), aff'd 87 DTC 5248, [1987] 1 CTC 417

Muldoon, J.:—It will be noticed by anyone who sees the documents on the Court's file of these proceedings, that one of the references preceding the title of action (style of cause), as formulated by the applicant’s solicitors, announces: “AND IN THE MATTER OF the Constitution Act, 1982, and sections 7, 8, 24 and 52 thereof”. That reference presages a prayer for, "(6) A declaration that sections 223 and 224 of the Income Tax Act are of no force and effect". At the beginning of the hearing of this litigation, on August 15, 1986, the applicant’s counsel informed the Court that the applicant abandons herein its claim for relief to declare sections 223 and 224 of the Income Tax Act to be of no force and effect. So be it.

(Parenthetically, it may be observed that the legislators who enacted Schedule I of the Federal Court Act, and the judges who composed Appendix I to the Rules, made no provision for such references. Further, if Her Majesty the Queen be an appropriate party herein, which is doubtful, the expression "in Right of Canada" is in the same state of inutility as the immediately above-mentioned references and should share their fate. They will be eliminated from the formal order which will dispose of this motion, and this may be taken to be an order to eliminate all of those extraneous references from further proceedings, if any, in these proceedings.)

The remaining prayers for relief expressed by the applicant are as follows:

(1) A Writ of certiorari or an order for relief in the nature thereof to quash the determination by the respondent, the Minister of National Revenue, to assess tax as owing by the applicant and the issue of a document headed “Notice of Assessment” dated June 3, 1985 in respect of those taxes allegedly owing by the applicant;

(2) A Writ of certiorari or an order for relief in the nature thereof to quash the decision by the respondent to issue a “Requirement to Pay” dated March 18, 1986 pursuant to section 224 of the Income Tax Act delivered by hand to the Royal Bank of Canada, 20 King Street West, Toronto, Ontario respecting taxes allegedly owing by the applicant;

(3) A Writ of certiorari or an order for relief in the nature thereof to quash the decision by the respondent to issue a “Requirement to Pay” dated March 18, 1986 pursuant to section 224 of the Income Tax Act delivered by hand to the Canada Permanent Trust, 66 Temperance Street, Toronto, Ontario respecting taxes allegedly owing by the applicant;

(4) A Writ of certiorari or an order for relief in the nature thereof to quash the decision by the respondent to issue a Certificate pursuant to section 223 of the Income Tax Act respecting taxes allegedly owing by the applicant;

(5) A writ of prohibition or relief in the nature thereof prohibiting or restraining the respondents and anyone under their direction and control from continuing with collection proceedings against the applicant until it is lawful to do so;

(6) [abandoned]

(7) Such other orders as may to this Honourable Court seem just.

The applicant asserts the following grounds in support of its prayers for relief:

(a) That the respondent acted without or in excess of his jurisdiction in issuing a Notice of Assessment;

(b) The document headed Notice of Assessment issued by the respondent contains an error on its face in that the tax allegedly assessed is shown as owing pursuant to subsection 195(2) of the Income Tax Act, which section does not create an obligation to pay tax;

(c) The Certificate issued pursuant to section 223 of the Income Tax Act contains an error on its face as to the amount of tax, if any, that is owing by the applicant;

(d) That the collection proceedings taken by the respondent amount to unreasonable seizure of the assets of the applicant contrary to sections 7, 8 and 52 of the Charter of Rights and Freedoms; and

(e) [abandoned]

(f) Sections 223 and 224 of the Income Tax Act are procedurally unfair and infringe on the applicant’s right to a fair hearing or infringe on the applicant’s right to security of property contrary to the Canadian Bill of Rights.

Ground (f), in invoking the Canadian Bill of Rights, is broader than the relief claimed and, in so far as it implies a plea for a declaration of invalidity or lack of force and effect, it also is regarded as having been abandoned.

On behalf of the applicant there was filed the affidavit of John Adamson, its president. Annexed to his affidavit are voluminous and numerous exhibits which invite more detailed examination and commentary than can be accorded here in view of the pressing nature of these proceedings upon which the parties desire the Court's pronouncement without delay. Mr. Adamson was cross-examined on his affidavit, of which paragraph 19 is struck out of it. No affidavit was tendered on behalf of the respondent Minister.

The applicant has served and tendered a rather succinct statement of fact and law included in the motion record herein. The respondents have tendered such a statement, as well as two books of authorities. For convenience in the circumstances, those statements of fact are now reproduced herein, with such commentaries, abridgements and findings as the Court deems necessary and desirable. Both express the parties’ references to other material. The applicant is frequently called O.R.C.

1. The applicant is a Canadian corporation carrying on the business of scientific research and development with its head corporate office located in the City of Toronto, in the Municipality of Metropolitan Toronto.

2. The company was incorporated, as Information Tunnel Research Inc., on August 17, 1984. It has subsequently changed its name to Optical Recording Corporation.

3. The fiscal year end for the corporation is February 28.

(The above assertions are admitted by the respondents.)

4. In April of 1985, O.R.C. designated amounts totalling $21,500,000 pursuant to subsection 194(4) of the Income Tax Act, as the respondents admit. The applicant says that those amounts were the consideration received by O.R.C. on the issue of shares, debt obligations and certain rights to finance scientific research and development. (For purposes of these proceedings, this can be taken to be true, without prejudice to any rights of the respondents in other proceedings.)

5. In June of 1985, the Minister of National Revenue served a “Notice of Assessment” dated June 3, 1985 purporting to levy an assessment under Subsection 195(2) of the Act in the amount of $10,750,000.

Reference: Affidavit of Gary John Adamson, paragraph 8.

6. The Notice of Assessment provided on its face:

“Corporations that have issued scientific research or share-purchase tax credit securities are technically liable to pay the related Part VIII tax by the end of the month following the transaction. However, under the terms of this special credit program, the tax liabilities may be reduced or extinguished through the use of qualifying expenditures or tax credits. Since these Part VIII tax liabilities may be reduced, Revenue Canada, Taxation is prepared to modify or withhold its usual collection action with respect to these assessments where the corporation is able to satisfy Revenue Canada that its liability will be eliminated by the end of the year, or provide acceptable security." [Emphasis added.]

Reference: Affidavit of Gary John Adamson, paragraph 9 and Exhibit “D”.

(Statements of fact 5 and 6, above, are admitted by the respondents.)

7. In reliance on this statement, the corporation did not file a Notice of Objection to the Notice of Assessment, as it had already eliminated its liability regarding this tax.

Reference: Affidavit of Gary John Adamson, paragraph 9.

Cross-examination of Gary John Adamson,

pages 30, 31, 32,

questions 121 through 133

The respondents do not admit paragraph 7 and state that when the applicant’s president, Mr. Adamson, received the Notice of Assessment he did not at first immediately read it, but instead put it aside. Mr. Adamson did not understand that there was such a procedure as a Notice of Objection until after the time limit for objecting had passed.

Reference: Cross-examination of John Adamson,

pages 2-3, questions 1-15; and

pages 30-32, questions 121-133.

Both the applicant and the respondents are correct. The Court finds that the receipt of the two-page document caused Mr. Adamson, upon reading it, to review and to reaffirm his belief that the applicant, O.R.C., had already eliminated its liability for Part VIII tax, and therefore in light of the emphasized passage, that the respondent Minister and his officials were not exacting payment of the $10,750,000 recorded on the other page. It is true that Mr. Adamson did not immediately read that document, did not then understand that there was such a procedure as a notice of objection and was unable to say on cross-examination which particular phrases or linguistic constructs in the cited paragraph conveyed to him, as it did, that its meaning was to remove any requirement to pay the sum recorded on the other page. In the view which the Court takes of the evidence those truths indicated by the respondents are of wan weight or significance when compared with the salient fact that the Minister’s message conveyed to Mr. Adamson the eminently reasonable meaning that the Minister and his officials were not requiring the payment of the cited sum, but were in fact merely acknowledging the applicant's filing.

8. In late 1985 and early 1986, John Adamson met with [three named officials, included among whom was one from Revenue Canada Collections], to discuss the subject of collateral security by O.R.C. as against the potential tax liability.

Reference: Affidavit of Gary John Adamson, paragraph 10

(The respondents admit the above assertion of facts.)

9. The scientific equipment purchased and to be credited against the tax liability has been assessed by one Professor Chamberlain. [Respondents correctly add the following remarks.] Professor Chamberlain was retained by Revenue Canada for the purpose only of ascertaining whether the research carried out by the applicant was scientific in nature. Any statement made by Professor Chamberlain was only concerned with that issue. The only opinion sought by the applicant from Revenue Canada was with respect to whether the financing arrangements for the purchase of certain equipment satisfied the transitional provisions of the Income Tax Act. No other opinion was sought from and no other opinion has been given by Revenue Canada with respect to any other issue.

Paragraph 11 of affidavit of John Adamson and

Cross-examination of John Adamson,

pages 11-16, questions 50-65;

pages 19-20, questions 73-76;

pages 21-23, questions 82-87; and

pages 53-56, questions 205-209.

10. On March 18, 1986, two of the creditors of O.R.C. (the Royal Bank of Canada and Canada Permanent Trust) were served with requirements to pay by the Minister of National Revenue. This has had the effect of freezing the funds held by them for O.R.C.

Reference: Affidavit of Gary John Adamson, paragraphs 12 and 13.

(This is admitted by the respondents.)

11. Optical Recording has requested an extension of time to file a Notice of Objection to the Notice of Assessment of June 3, 1985. The Minister has refused to consent to such an extension of time.

Reference: Affidavit of Gary John Adamson, paragraphs 14 and 15.

The respondents admit the above facts, but add that pursuant to subsection 167(5) of the Income Tax Act unless the Court is satisfied that the requirements of paragraph 167(5)(c) of the Income Tax Act are satisfied no extension shall be granted, notwithstanding the respondents’ position.

12. Optical Recording has filed a tax return for its fiscal year ending February 28, 1986 which shows no Part VIII tax owing as the Part VIII liability has been eliminated through expenditures on research and development.

Reference: Affidavit of Gary John Adamson, Exhibit “P”.

The respondents admit that the applicant has filed such a return, but they deny that the Part VIII tax liability has been eliminated through expenditures on research and development.

13. The Minister of National Revenue has indicated that it will continue its collection proceedings in this matter.

14. On July 3, 1986, six days before a scheduled hearing in the Supreme Court of Ontario brought by Canada Trust to interplead the sum of $543,858.00 of monies due and owing to Digital Recording Corporation, the Minister consented to these funds being paid to Digital Recording Corporation.

(The respondents admit the facts expressed in paragraphs 13 and 14 above.)

The above-mentioned sum was held in escrow by the trust company for the purpose of paying the remaining expenditures for scientific research equipment, according to an escrow agreement, by which total expenditures Mr. Adamson believed the applicant had, or would have, eliminated its Part VIII tax liability before or by the dawning of the day of reckoning.

In addition to the above recited facts about which there is little relevant dispute here, the respondents would add certain others, thus:

A. The applicant chose to avail itself of the scientific research tax credit provisions of the Income Tax Act voluntarily and under no compulsion.

Cross-examination of John Adamson,

page 27, questions 106-107.

B. The applicant in filing designations under subsection 194(4) of the Income Tax Act, could have designated any amount up to $21,500,000.00.

Cross-examination of John Adamson,

page 27, questions 108-109.

C. The applicant designated in total $21,500,000.00 pursuant to subsection 194(4) of the Income Tax Act and declared that the Part VIII tax payable, which was 50% of the total amount designated, was $10,750,000.00. The designations filed were prepared on the instructions of Mr. Adamson and were signed by him.

Cross-examination of John Adamson,

pages 25-27, questions 92-105.

(The above three statements of fact are correct.)

D. At the time the applicant filed the designations under subsection 194(4) of the Income Tax Act, it knew that its Part VIII tax payable would be 50% of the total amount designated.

Cross-examination of John Adamson,

page 27, question 110.

The above statement is correctly cited, but it would be most accurately stated .. could be as much as 50% of the total amount”. At the end of the tax year tax might have been entirely eliminated or might be less than 50%, but no more than 50 per cent.

E. The assessment issued to the applicant, in respect of the designations filed, was in an amount equal to 50% of the total amount of the designations filed, which was $10,750,000.00.

Cross-examination of John Adamson,

page 28, question 112.

The above statement E is also correctly cited but begs the question of whether or not that which is called an assessment is simply a nullity.

F. At the time the applicant received the Notice of Assessment it had not and at no time since receiving the Notice of Assessment has the applicant received any confirmation from Revenue Canada that they were satisfied that the Company’s Part VIII tax liability would be satisfied.

Cross-examination of John Adamson,

page 33, question 134;

pages 11-16, questions 50-65;

pages 19-20, questions 73-76;

pages 21-23, questions 82-87; and

pages 53-56, questions 205-209.

G. The assessment issued to the applicant has not been altered by virtue of any objection or appeal filed by the applicant.

Cross-examination of John Adamson,

page 28, questions 113-114.

H. The applicant has at no time offered to provide security to Revenue Canada for its Part VIII tax liability and has refused all requests for security made by Revenue Canada.

Cross-examination of John Adamson,

pages 43-44, questions 169-171; and

pages 50-51, questions 187-191.

I. The Requirements To Pay issued in respect of the applicant’s Part VIII tax liability do not refer to any Notice of Assessment.

Cross-examination of John Adamson,

pages 41-43, questions 162-168.

J. The applicant’s Part VIII income tax return was filed in early April, 1986.

Cross-examination of John Adamson,

pages 38-41, questions 153-161.

K. Revenue Canada is currently auditing the applicant’s Part VIII return.

Cross-examination of John Adamson,

page 53, question 200.

L. Paragraph 10 of the affidavit of John Gary Adamson, sworn June 18, 1986, should be amended to read, inter alia:

“,.. On both occasions I advised [the department's collections official] and do verily believe that there was no need for collateral security as O.R.C. had satisfied the potential tax liability through its equipment purchase made with Digital and that O.R.C. is a well established business in Toronto.”

Cross-examination of John Adamson,

page 36, questions 145-146.

(Statements F to L are correct.)

The respondents also allege, as a fact, that which is properly a conclusion of law:

M. At all material times the applicant, by virtue of subsection 195(2) of the Income Tax Act, was liable to make a payment under the Income Tax Act.

In terms of the relief sought here, that statement is a double-edged sword of the kind traditionally associated with the allegorical symbol of justice.

Subsection 195(2) of the Act will be considered, in conjunction with other pertinent matters, after consideration of the question of this Court's jurisdiction to adjudicate on the applicant’s motion for relief pursuant to section 18 of the Federal Court Act. The question is raised and discussed by both sides.

At first blush that question might seem to be already concluded. The Appeal Division in its unanimous decision in M.N.R. v. Parsons, [1984] 2 F.C. 331; [1984] C.T.C. 352; 84 D.T.C. 6345, (reversing the Trial Division judgment [1984] 1 F.C. 804; [1983] C.T.C. 107; 83 D.T.C. 5329) held:

We are all of opinion that the appeal must succeed on the narrow ground that the only way in which the assessments made against the respondents could be challenged was that provided for in sections 169 and following of the Income Tax Act. This, in our view, clearly results from section 29 of the Federal Court Act.

The learned judge of first instance held that, in this case, section 29 did not deprive the Trial Division of the jurisdiction to grant the application made by the respondents under section 18 of the Federal Court Act because, in his view, the appeal provided for in the Income Tax Act was restricted to questions of "quantum and liability” while the respondents’ application raised the more fundamental question of the Minister’s legal authority to make the assessments. We cannot agree with that distinction. The right of appeal given by the Income Tax Act is not subject to any such limitations.

In our view, the Income Tax Act expressly provides for an appeal as such to the Federal Court from assessments made by the Minister; it follows, according to section 29 of the Federal Court Act, that those assessments may not be reviewed, restrained or set aside by the Court in the exercise of its jurisdiction under sections 18 and 28 of the Federal Court Act.

Since the release of the Parsons judgment, there have been apparently conflicting decisions of the Trial Division in W.T.C. Western Technologies Corp. v. M.N.R., [1986] 1 C.T.C. 110; 86 D.T.C. 6027, and in Bechthold Resources v. M.N.R., [1986] 1 C.T.C. 195; 86 D.T.C. 6065.

The case at bar raises issues about the paragraph attached to the purported notice of assessment (exhibit ““D’’, above recited) and the respondent Minister's policy of collections (exhibit “A” to Mr. Adamson's affidavit), which are quite beyond the scope of the appeal provisions of the Income Tax Act upon which the Appeal Division relied in order to invoke section 29 of the Federal Court Act in derogation of the Trial Division's jurisdiction in the Parsons case.

The issues to be determined here are much broader than, and different from, matters of extension of time to appeal, the validity of a notice of assessment and appeal therefrom. The issues here raise questions of fundamental administrative illegality, unfair treatment and estoppel which engage the superintending jurisdiction of a superior court, such that even if this Court's disposition of them be ultimately adjudged to be wrong, the Court's decision to entertain them should be seen to be correct. The case at bar is therefore quite distinct from the Parsons case. It will be seen, as well, to be distinguishable from the W.T.C. Western and Bechthold Resources decisions. For these reasons, which are more fully developed hereinafter, the Court accepts and exercises jurisdiction in, upon and over the subject of this motion.

A brief general explanation of the Scientific Research Tax Credit (SRTC) program, in more narrative prose than the Act provides, can be gleaned from the first two pages of the Department's internal paper on administrative policy and procedures, a copy of which is annexed as exhibit "A" to Mr. Adamson's affidavit, thus:

Incentives for research and development (R & D) have been provided in the Income Tax Act since 1944. However, in the past these tax incentives were only of value to companies that were in a taxable position. The SRTC mechanism was introduced to allow research companies to provide tax incentives to investors to assist the research companies in attracting external financing for their R & D programs. SRTCs may be issued after September 1983 and in respect of qualified R & D expenditures incurred after April 19, 1983.

The SRTC provisions enable a corporation to issue capital stock, debt obligations or certain rights (SRTC securities) after September 30, 1983 to raise capital to fund its R & D activities. Pursuant to subsection 194(4) of the Act, a company issuing SRTC securities can designate, by filing prescribed form T2113 no later than the end of the month following the month of issue, any amount up to the issue price of the SRTC security (net of any government assistance received by the investor in respect of the security). The first purchaser of the SRTC securities will thereby become entitled to deduct a tax credit equating to 50% of the amount designated by the issuer in respect of the SRTC securities.

(pp. 00006 and 00007 of the motion record)

In making its designation, the applicant effected a timely filing of the prescribed form T2113, which is exhibited as schedule "A" to the respondents' points of argument. Having designated $21.5 million, the applicant became liable to pay, on account of its tax payable pursuant to Part VIII of the Act, the sum of $10,750,000. Such liability is provided in subsection 195(2) of the Act.

The eye of the storm for the present litigation resides in subsection 195(2) of the Income Tax Act. It runs as follows:

195. (2) Where, in a particular month in a taxation year, a corporation issues a share or debt obligation, or grants a right, in respect of which it designates an amount under section 194, the corporation shall, on or before the last day of the month following the particular month, pay to the Receiver General on account of its tax payable under this Part for the year an amount equal of 50% of the aggregate of all amounts so designated. [Emphasis added.]

This solemn enactment of Parliament is mandatory, absolute and precise.

The ultimate tax, on account of which subsection 195(2) exacts the above- mentioned 50 per cent, will not be assessed in excess of that amount. "However, to the extent that a corporation's Part VIII tax liability is extinguished by Part VIII refunds generated before the end of the year in which [it] issued SRTC securities, no Part VIII tax or interest thereon will be payable" according to the said policy paper, exhibit "A" at its pages 2 and 3. (pp. 00008 and 00009 of the motion record)

In oral argument, counsel for the respondents indicated that the way the SRTC system works, if the Minister started insisting on payment pursuant to subsection 195(2) the working of the scheme would be affected. He noted that the respondent Minister tries to facilitate the working of the scheme, but not to jeopardize the security of tax revenues; and he asserted that if the Minister is strict, the legislative provision will not work. So, the Minister provides, extra-legally, for voluntary arrangements, of which there is no parliamentary approval.

No doubt successive ministers can be credited with good intentions by taxpaying corporations engaged in scientific research, which must appreciate the indulgence of the “extra-legal” voluntary arrangements. But, in law, those intentions are quite beside the point.

On page 8 of the respondents' points of argument there is this passage:

Form 12113 [already mentioned] indicates that payment of Part VIII tax and penalty is to accompany the filing.

It does indicate that, but at the filing, no tax is necessarily assessed or due. Subsection 195(2) exacts payment merely “on account of its tax payable under this Part”. The passage continues:

Strictly speaking a form, without the payment of Part VIII tax accompanying it, cannot be said to be validly filed. But the Minister does not take that strict an approach, he accepts such forms as validly filed. Nor does he insist on payments mandated by subsection 195(2) if the corporation could show that the liability for Part VIII tax would be satisfied.

In terms only of the Minister's indulgent approach to the law, the applicant has always maintained that it would lawfully succeed in eliminating its Part VIII tax liability, and it exhibits a copy of its return for its taxation year ending February 28, 1986 (at p. 00110 of the motion record) to verify its contentions. The Minister has not yet assessed the Part VIII tax in this regard.

The respondents' policy is revealed in exhibit “A” which is too voluminous to be recited here. It is stated to be “for departmental use only” as the respondents' counsel confirmed. Two samples will suffice to demonstrate how that policy departs from the precise and absolute command which Parliament enacted in subsection 195(2). At pages 5 and 6 (pp. 00011 and 00012 of the motion record):

As the purpose of this project is to determine the corporation’s ability to satisfy its Part VIII tax obligation, the following questions should be answered in the course of the interview(s) and a copy of the results placed in the T2 file with the permanent correspondence:

1. How does the taxpayer intend to satisfy its Part VIII tax liability?

At page 7 of exhibit “A” (p. 00013 of the motion record):

Where it is evident that the company has generated or will generate a Part VIII tax refund sufficient to offset its Part VIII tax liability, no further action is required. In addition, no further action is required for companies that appear to be sound taxpayers based upon an evaluation of their corporate history, size, financial status and the nature of their operations or for companies that can establish that they have the technological capability to carry out a bona fide research project (i.e., qualified personnel, proper facilities, etc.) and the financial capability to spend sufficient funds on qualified R & D to eliminate its Part VIII tax liability (i.e. the taxpayer has access to sufficient internal or external financing to incur sufficient R & D expenses).

Counsel for the respondents were offered a recess during the hearing, for the purpose of consulting among themselves, or with anyone else, in order to reflect upon their position in regard to the Minister's lawful authority, if any, to effect his indulgent policy scheme evinced in exhibits “A” and “D". They declined the recess but conferred together at the counsel table and then indicated that they could cite no such authority.

Since, as the respondents' counsel conceded, the Minister’s invitation to disregard the legislative command to pay 50 per cent within the stated time is “extra-legal", it is obviously wholly beyond the contemplation of the Income Tax Act, and is obviously not engaged by the objection and other appeal provisions therein enacted by Parliament. As well, the Minister receives no lawful or any authority to thwart subsection 195(2) by means of the provisions of subsections 153(1) or (1.1) of that Act, nor yet by any means provided in section 17 of the Financial Administration Act, R.S.C. 1970, Chap. F-10.

One is left with the conclusion that the Minister's “extra-legal” policy is quite illegal. It runs directly against subsection 195(2) of the Income Tax Act. That Act, moreover, makes no procedural provision for contesting by litigation such an illegal irregularity.

The respondents' counsel's secondary plea of necessity rings hollow because successive Ministers have always been members of the successive governments of the day, which always can, and frequently did and do lay before Parliament numerous amendments to this Act. If there were such necessity for this policy of counselling and permitting disobedience of the law, why not seek approval and ratification by Parliament? Parliament is the only constitutional arbiter to decide whether or not such indulgence be necessary and Parliament alone can and could enact it into law or decline to do so.

After the completion of all oral argument, counsel on both sides were invited to submit, in writing, any further thoughts on any of the issues debated in the court room. Under cover of a letter dated August 21, 1986, the respondents' counsel submitted “Further Submissions by the Respondents", signed by the three counsel, with a copy to the applicant's counsel.

The judgments in The Queen v. Garry Bowl Ltd., [1974] C.T.C. 457; 74 D.T.C. 6401, and in Danielson v. Dep. A-G of Canada and M.N.R., [1986] 2 C.T.C. 42; 86 D.T.C. 6340, are cited for the respondents.

In the Garry Bowl decision, it was contended that a judgment of the Tax Review Board allowing an appeal from “nil assessments" was a nullity and that no appeal could be taken from a nullity to this Court. The present Chief Justice of the Federal Court was then a member of the appellate panel and, for the Court he wrote (at 460 (D.T.C. 6403)) to the effect that, whereas the Board ought to have realized immediately that there was no relief which it could properly accord and that the appeal ought to have been dismissed, nevertheless that circumstance did not deprive the Board of jurisdiction to deal with what purported to be an appeal pursuant to the Act. There the fact of a properly lawful assessment — a “nil" assessment to be sure — was not questioned and, of course, there was no suggestion that the Minister had created any illegal anomaly in order to induce breach of the law, an anomaly which is not even contemplated by procedures provided in the Income Tax Act. The Garry Bowl decision, unexceptionally correct in and for the noted circumstances, does not engage or bear upon the circumstances here.

The Danielson case relates to delay in collection whereby “an amount assessed in respect of a taxpayer" was reasonably considered to be jeopard- ized, pursuant to section 225.2 of the Act. Having declined to submit any evidence herein, the respondents fail to demonstrate that circumstance here. Nor is there any evidence here of the notice to the taxpayer prescribed by that section. On the contrary, the applicant here complains that, while it was still engaged in attempting to demonstrate to the respondent Minister its elimination of Part VIII tax liability, the Minister effected the freezing of its operating accounts without notice or other warning.

The respondents' counsel, in their latest submission, return to the Becht- hold decision and emphasize subsection 152(8) which deems an assessment to be valid, subject to certain conditions. It will be noted that in the latter case (C.T.C. 200; D.T.C. 6070) it is said "subsections 4 and 7 of section 152 allow the Minister to assess at any time". To "assess" in terms of the Act must mean all or either of "to calculate, to compute and to fix and to determine". The verb "assess" does not operate at large. It is not expressed in an intransitive usage. It is transitive. The Minister must assess something. He assesses tax(es), penalty and interest. What then could he assess pursuant to subsection 195(2) ? Not taxes, for they were not yet due. What was due was a payment "on account of . . . tax". How could the Minister calculate, compute, fix or determine any sum of tax in regard to subsection 195(2)? All the calculating, computing, fixing and determining had already been done, by Parliament, in exacting 50 per cent of the amounts designated to be paid by the end of the following month. There was nothing for the Minister to assess. Parliament performed the assessment as such and demanded payment forcefully and precisely. What Parliament did was quite adequate, and did not call for the Minister's interference.

The respondents' counsel offer the Minister's objective and intentions as a basis for usurping legislative power, and in so doing they merely emphasize the illegality of such usurpation. Here is part 5 of their further submissions:

The timing for the collection of Part VIII tax is fixed by statute. A payment on account of tax is required to be made by subsection 195(2) within 2 months (at the latest) of the date as of which a designation under s. 194 is made. In practice the Minister may extend the time for the payment. The extension depends upon various circumstances but the underlying objective is to secure the taxes due. To either rigidly adhere to the mandatory requirement of s.195(2) or to extend the time for payment as a matter of course could seriously impair the working of the Part VIII scheme.

It is submitted that in the circumstances the Minister is the appropriate person to decide whether the circumstances warrant an extension of time for collection or not. The effect of subsection 195(2) is that the debt due to Her Majesty (s. 222) is crystallized as of the end of the month following the month in which the amount was designated. The Minister’s action in dealing with the Applicant in collecting the debt is analagous to that of other creditors in similar circumstances. Any concession made with respect to discharging the debt does not affect the validity of the debt itself. It would not be appropriate either to legislate or to direct judicially the process of such negotiations for there is no question involved of the relative rights of the parties. All concessions made by the Minister were for the benefit of the Applicant. The concessions were made gratuitously. It is submitted that the practice of the Minister in collection matters of taking into account the particular circumstances of a taxpayer and the preservation of the public purse is to be encouraged rather than inhibited in order to achieve the purpose of the Part VIII scheme. [Emphasis added.]

As noted above, Parliament provided adequately and lawfully for the preservation of the public purse, and it did not provide for the Minister’s usurpation of its legislative power.

As the applicant’s counsel argues, this situation is not, in the words of subsection 152(8), merely a matter of “any error, defect or omission" in an assessment "or in any proceeding under this Act relating thereto". He rightly argues, in his response to the respondents' further submissions, that the Minister, in effect, stepped in, and induced the applicant to follow him, outside the proceedings under the Act. As such, he argues, that subsection cannot be applied to validate a purported notice of assessment issued without jurisdiction, as this is not contemplated by the subsection.

The applicant’s counsel is willing to concede that although the Minister may indeed exercise some discretion as to whether the circumstances of a particular case warrant an extension of time for collection, (without mentioning the regime of subsection 195(2) specifically in this regard) he nevertheless asserts that upon the Minister making a representation to a taxpayer, that representation should be binding. Here, he asserts again that the applicant is, indeed, prejudiced for, having relied on the Minister's written offer (Exhibit “D’’ to Mr. Adamson's affidavit, previously recited) in writing, it did not file a notice of objection. Since, as the applicant contends, it had already eliminated its liability in respect of the tax referred to in the form of notice of assessment it was led to believe that there was no need for a notice of objection, and now the applicant is too late to put forward its notice of objection in the course of a regular appeal under the Income Tax Act.

There is a strong fibre in the fabric of our law which is to the effect that neither the Sovereign, nor the Sovereign's minister nor yet any exactor régis is above the law. So strong is that fibre that our people have come rightly to expect that a minister of the Crown will not counsel them to break the law.

It is reasonable to hold that John Adamson, the applicant’s president, harboured that same expectation, as his affidavit and cross-examination demonstrate. The apparent authority of the Deputy Minister who "signed" the note attached to the assessment notice (Exhibit ““D’’) would dupe many a reasonable taxpayer into accepting the legitimacy of the assertions therein, and the more so (in light of human nature), because no payment was demanded. By that note the Minister was, in effect, telling the applicant: "Despite the law enacted by Parliament in subsection 195(2), you do not have to obey Parliament’s absolute and precise command to pay on account of tax until I or my officials tell you to pay.” The Minister sought to put himself above the law in purporting to absolve the applicant from its lawful duty, and in publishing a notice to that illegal effect.

So it was that after the time in April 1985, when the applicant, O.R.C. designated the $21.5 million pursuant to section 194, the Minister and his officials failed to take that strict approach, which was their duty, to exact the 50 per cent which Parliament commanded to be paid. That was certainly the time to do it.

So it also was that in early June 1985, when that curious "assessment" (not of tax, but maybe of the sum already levied under subsection 195(2) of the Act) was directed to the applicant, the respondent counselled the applicant conditionally not to pay because the Department "is prepared to modify or withhold its usual collection action . .. .” Of course, with such apparently official encouragement — albeit not read immediately by Mr. Adamson — the applicant did not pay and the respondent did not enforce the law which commanded payment. The Minister bears greater responsibility — blame — for this flouting of the law than does the applicant.

Printed forms are part of the essential mystique of governments in the twentieth century, but one must not be dazzled by printed forms even when they are officially prescribed. The printed form itself, carries no legal force. One wonders why the Minister, or his Deputy or their officials, in conveying whatever message they intended to convey on June 3, 1985, chose to make a notice of assessment form the vehicle. There was no Part VIII tax due to assess at that time. Nor was the Minister then demanding payment as his words and deeds amply demonstrate. Since that form of notice of assessment signified neither demand nor assessment it amounts to a double nullity. Indeed it is not really clear just what message was intended, or could be taken, from Exhibit “D", except that the applicant was not then required to pay any money until the Minister, the Deputy or the officials told him to pay.

About September 3, 1985, the ninety-day period in which the applicant could have lodged a notice of objection expired. That is, it expired, if there were a real notice of assessment calling for a notice of objection, and not just a double sham. Still the respondent Minister and his officials declined to exact from the applicant that payment which Parliament commanded be made on account of tax. They continued to foster that clear breach of the aw.

Much correspondence flowed between the applicant and the Minister's officials in late 1985 and early 1986 as is demonstrated by Exhibits “E" to “J". By the end of December 1985, the Minister had designated Prof. Chamber- lain to perform an evaluation of the scientific and research aspects of the applicant’s activities. Matters rolled along with the parties still wedded in the Minister's illegal policy scheme, with the applicant being intent on showing Prof. Chamberlain its marvellous optical research laboratory, when on March 18, 1985, the Minister struck with two garnishing instruments (Exhibits “K" and “L’’), thereby freezing the applicant’s operating accounts.

The respondents' counsel concedes that there is nothing before the Court to show that the applicant was given any warning or notice of a change of official attitude from that of the previous several months. The applicant was never informed that the Minister had changed his mind about not collecting the money. To pounce upon the applicant after first having induced its president, by illegal abuse of ostensible authority, into the reasonable belief that the applicant did not (if not would not) have to pay is quintessentially unfair to the applicant. It is unfair even in the context of an illegal scheme, which indulgently purported to absolve the applicant of obedience to the law’s absolute and precise command.

One wonders why the respondent Minister, when he decided that he ought at last to take sudden action, did not register the certificate of indebtedness in this Court pursuant to subsection 223(2). It would have operated as a judgment of this Court. From that, the applicant would not have been foreclosed from complaining by means of appeal, and could at least have sought a stay of enforcement pending appeal. It appears that subsection 223(2) has not been invoked yet by the Minister in the matter.

The respondents, by illegal abuse of authority and false inducements, are clearly estopped from taking any benefit from their sudden garnishments of the applicant’s accounts. They are justly estopped even in public law and even although the benefit taken is not for personal gain but for the public purse. The principle of estoppel here is closely akin to that other long and hardy fibre in the web of our law, ex turpi causa non oritur actio. The Minister cannot be permitted to put a taxpayer to prejudicial disadvantage by invocation of illegal administrative means of the Minister's own invention, which unlawfully induced the taxpayer into a highly vulnerable position. The circumstances here do not support the decision to issue the garnishments nor the instruments themselves.

The actions of the Minister and his officials are so infected with error of law, illegal conduct, excess of jurisdiction and unfair pouncing without reasonable or any notice, that those impugned decisions and acts which affect the applicant adversely ought all, in justice, to be quashed. Included will be the purported notice of assessment, that curious double nullity. If this determination by the Court be seen, on further adjudication to run counter to the Parsons decision, it will also be seen to be severable and distinct from the other dispositions herein.

Certiorari is granted to quash, as well, the respondent Minister's decisions to issue the two statutory requirements to pay, the garnishing orders, and to quash the instruments themselves, which are removed into this Court for that purpose.

It is far too late now for the applicant to make timely compliance with subsection 195(2) of the Income Tax Act from which it was counselled and induced by the Minister. The reasonable course now would be to perform a real assessment of tax, including Part VIII tax, if any, upon the applicant's now filed income tax return, in order to determine whether or not the applicant actually did eliminate its liability for those Part VIII taxes.

Accordingly, certiorari is also granted to quash the respondent's decision to issue a certificate pursuant to section 223 of the Act, and to quash the certificate itself, which is now removed into this Court for that purpose. The applicant is therefore also entitled to relief in the nature of prohibition to prohibit the respondent Minister and everyone under his direction and control from continuing with collection proceedings until it is lawful and fair to do so. One criterion of timing for the lawful and fair resumption of collection proceedings is suggested above.

The applicant is entitled to its taxable party-and-party costs.

Application granted.