Utah Co. of Americas v. MNR, 59 DTC 1275, [1959] CTC 496 (Ex Ct)

CAMERON, J.:—This is an appeal by Utah Co. of the Americas (hereinafter referred to as ‘‘the appellant”) from a re-assessment to income tax dated July 23, 1957, for its taxation year ending October 31, 1955. The appellant was incorporated under the laws of the state of Nevada on May 21, 1951, and is a wholly owned subsidiary of the Utah Construction Company—a Delaware corporation; it w as registered in British Columbia as an extra-provincial company on September 8, 1954.

The appellant’s first income tax return for the period September 8, 1954, to October 31, 1954, showed no taxable income. For the year 1955, the revised taxable income was $43,164.12, of which $2,005.29 was from its mining operations, and $41,158.63 from construction operations. In 1956, its total loss on all operations was $48,854.53, construction operations showing a profit of $227,874.10 and mining operations a loss of $276,728.63. Because of the loss sustained in 1956, the Minister re-assessed the appellant for 1955 and, purporting to follow the provisions of Section 27(1) (e) of the Income Tax Act, allowed a deduc- tion of $2,005.29 as “Application, of 1956 loss against mining profits’’. The deduction of that portion only of the 1956 losses was on the ground that the appellant’s losses in 1956, which were incurred entirely in the mining operations, could be applied against the appellant’s 1955 income only to the extent of its income in that year from mining operations. The appellant was accordingly assessed to tax of $17,608.20 and interest. I was advised that the full amount had been paid under protest, pending this appeal.

The appellant submits that on a proper interpretation of Section 27(1) (e), the Minister in his re-assessment should have applied the 1956 loss against the whole of the appellant’s profit for 1955, and that had he done so, no tax would have been payable for 1955 and the appellant would have been able to carry forward to subsequent years the balance of the 1956 loss, namely, $5,690.41. The section in question is as follows:

“27. (1) For the purpose of computing the taxable income of the taxpayer for a taxation year, there may be deducted from the income for the year such of the following amounts as are applicable:

(e) business losses sustained in the 5 taxation years immediately preceding and the taxation year immediately following the taxation year, but

(i) an amount in respect of a loss is only deductible to the extent that it exceeds the aggregate of amounts previously deductible in respect of that loss under this Act,

(ii) no amount is deductible in respect of the loss of any year until the deductible losses of previous years have been deducted, and

(iii) no amount is deductible in respect of losses from the income of any year except to the extent of the lesser of

(A) the taxpayer’s income for the taxation year from the business in which the loss was sustained, or

(B) the taxpayer’s income for the taxation year minus all deductions permitted by the provisions of this Division other than this paragraph or section 26.”

Subparagraph (iii) prescribes the income figure from which the deduction is to be made, and it is common ground that clause (A) thereof is here applicable. That being so, the limit of the loss deductible is in this case the appellant’s income for the year 1955 ‘‘from the business in which the loss was sustained”. The appellant’s submission is that the business in 1955 and 1956 was the same and constituted but one business, although consisting of a number of operations. For the respondent it is submitted that the appellant carried on two businesses, namely, mining and construction, and that consequently the net losses sustained in 1956 and which arose solely because of the losses in that year in the mining operations, can be carried back and deducted from the 1955 taxable income only to the extent of the appellant’s income from mining operations in the latter year.

As stated in Frankel Corporation Ltd. v. M.N.R., [1959] C.T.C. 244 at 255—a decision of the Supreme Court of Canada— “Section 3 clearly contemplates that a taxpayer (which includes a corporation) may carry on more than one business’’. The question as to whether he does so is one of fact and it therefore becomes necessary to state in some detail the origin, history and operations of the appellant.

The appellant’s parent company, the Utah Construction Company, has been engaged for many years in general engineering, contracting and mining, carrying on business throughout the western hemisphere, as well as in parts of the Orient, Australia and Africa. It was incorporated in 1900, originally for railroad contracting. Later its activities expanded and have included mining (both on its own account and for others by contract), the construction of power plants, houses, refineries, bridges and building construction of all types. In 1951, it incorporated the appellant company in order to secure the tax advantages permitted by the United States statute referred to as The Western Hemisphere Act. The appellant was incorporated to carry on all the business of Utah Construction Company in the western hemisphere outside of the United States and now operates in Colombia, Peru and Canada.

Prior to the registration of the appellant company in Canada in 1954, the Utah Construction Company was the sole owner of Argonaut Mining Co. Ltd., incorporated in British Columbia in 1949. It commenced mining in 1951 and continued to produce and sell ore until February 1955, when all its shares and assets were transferred and donated by arrangement with the parent company, the Utah Construction Company, to the appellant, and the Argonout Mining Co. Ltd. was then wound up. The appellant continued the operation of the mine and the sale of its products as the Argonaut Mining Division until 1957, and it was from that mining operation that a small profit was made in 1955 and a heavy loss incurred in 1956.

The other main operation of the appellant in Canada was that of construction. Riverdale Park Ltd.—a housing development on Lulu Island in the Fraser River—was incorporated in 1954, presumably by Utah Construction Company. It entered into a contract with the appellant for the construction of houses. The only other construction project of the appellant in Canada was that of erecting a very large and costly building in Vancouver (the Burrard Building), the contract for which was signed in July, 1955. It was from these two operations that substantial profits were made in 1955 and 1956.

The main evidence relating to the appellant’s management field and financial operations was that of the president, Mr. Christensen. It is managed by one Board consisting of five directors and has its head office at San Francisco. The company has three main divisions, namely, mining, construction and real estate development, each having a general supervisor in charge at the head office. In Canada, up to the date of the hearing, the company had but two main divisions, namely, mining and construction. Each activity of these main departments is conducted as an individual project with a project manager and an administrative staff located at the site. Separate accounts are kept for each job and at the year end they are reported to the general supervisor in charge of mining, construction or real estate development, according to the nature of the project, and then the accounts are consolidated.

I do not find it necessary to set out all the evidence of Mr. Christensen. He said quite frankly: In general, I think mining is regarded as a different business than construction’’. He endeavoured to qualify that statement somewhat by adding:

We ourselves feel there are greater differences between several branches of the construction industry than there are between the heavy engineering branch of the construction industry and the mining industry.

We draw a greater distinction between housing construction and heavy engineering construction—the personnel, the tools, the products are more different than are those of our divisions operating as contractors for other mining companies.”

I attach great significance to Mr. Christensen’s statement that in general mining and construction are regarded as different businesses. Mining, I think, is generally regarded as meaning the extraction of minerals or coal from the earth and it might well include such further steps as refining and processing the ore. Construction, on the other hand, connotes the idea of putting parts together such as a building, a dam, highways, railway, etc., although such activities might also include preparatory steps such as excavation, blasting and the like. I find it difficult to believe that anyone when referring to a mining company would normally and properly refer to it as being in the construction business, and the reverse is equally true.

In the case of Scales (H.M. Inspector of Taxes) v. George Thompson & Co. Ltd. (1927), 13 T.C. 83, the question was whether the respondent company’s business, which consisted of ship-owning and underwriting, constituted one business or two separate businesses. The Commissioners held that there were two separate businesses and Rowlatt, J., in dismissing an appeal from their finding, pointed out some of the tests to be applied. At p. 88-9 he said :

“I think this is a plain case. I am bound to say I do not think there is any question of law raised here and, whether question of law or question of fact, I certainly should not say the Commissioners were wrong. This company carried on the business of underwriting. It also had a fleet of steamers. I cannot conceive two businesses that could be more easily separated than those two. They both have something to do with ships; that is all that can be said about them. One does not depend upon the other; they are not interlaced; they do not dovetail into each other, except that the people who are in them know about ships; but the actual conduct of the business shows no dovetailing of the one into the other at all. They might stop the underwriting ; it does not affect the ships. They might stop the ships and it does not affect the underwriting. They might carry on underwriting in a country where there were no ships; except that it would not be commercially convenient ; but the two things have nothing whatever to do with one another.

It is said that as a matter of law the Court must hold that they are one business, for these reasons, that the two businesses were bought together from a firm who had carried on both businesses; that the deposit at Lloyd’s was bought by the same company that bought the ships and supplied the working capital to run the ships; that the company is one company. Of course it is, but the fact that the company is one company and declares one dividend and so on cannot affect this case. The company can carry on two businesses, although it may, for the purposes of convenience, if it wishes, amalgamate the proceeds before paying the shareholders. Then it was said the profit and loss account throws some light upon it. What is the profit and loss account? The profit and loss account has entered in it upon the one side the result of the working account, that is to say, the profit made upon running the ships—that comes in. It is a very short profit and loss account. Then there comes in the profit on the underwriting at Lloyd’s; then there comes in the subscriptions to Lloyd’s on the other side—a very small item. That is all on that.

That method of book-keeping does not seem to me to throw any light upon this matter at all. I think the real question is, was there any interconnection, and interlacing, any interdependence, any unity at all embracing those two businesses; and I should have thought, if it was a question for me, that there was none. But I do not think it was a question of law. I think the Commissioners had ample evidence upon which they could decide, and they did so decide.”

As in that case, there is ample evidence here to indicate that the appellant was in fact carrying on two businesses, namely, mining and contracting. The evidence is that these two operations or divisions had different (a) processes; (b) products;

(c) services; (d) customers for the products, except possibly in one unusual case; (e) inventories; (f) locations; (g) union contracts; (h) offices; and (i) staffs. In addition, the accounting and records for each of the two divisions were maintained separately as is shown by the various statements attached to the 1955 tax return (Exhibit 2). The general overhead costs incurred at head office for directors’ fees, legal, engineering and accounting fees, etc., were divided in an equitable manner between the three main divisions which included (outside of Canada) real estate development operations. It is the fact, however, that certain equipment, such as trucks and the like, might on some occasions be switched from mining to construction and on one occasion, as Mr. Christensen recalled, a senior accounting clerk was transferred from the Argonaut Mining operation to the construction of the Burrard Building, but these are of relatively small importance. In such eases, the charges for these operations would be changed from the original to the later business.

It is to be recalled, also, that the mining operation was originally carried on by a separate company—the Argonaut Mining Co. Ltd.—and the only change after it was acquired by the appellant was that it became known as the Argonaut Mining Division of the appellant company. When it ceased operations in 1957, the other operation, that of contracting, was completely unaffected by that occurrence, but continued as before.

Counsel for the appellant drew my attention to the Articles of Incorporation (Exhibit 4) and pointed out the purposes of incorporation and the very large number of powers thereby conferred. He submitted that as all the activities carried on by the appellant fell within the powers conferred by the Articles of Incorporation, I should infer that as the appellant was but one corporation, the intention was to carry on but one business, namely, anything that fell within the corporate powers. I am unable to agree with that submission. An individual or a corporation may carry on a number of businesses concurrently: Here the Articles of Incorporation grant to the appellant the power to carry on ‘‘the business of stevedoring’’, and a further power to buy, develop and sell trademarks, patents and copyrights. If the appellant had chosen to embark on these two wholly unrelated activities, I think that it would have to be found that it was carrying on not one, but two businesses.

In my view, the appellant on the facts before me was carrying on two separate businesses in 1955 and 1956, namely, mining and construction. To use the language of Rowlatt, J., in the Scales case (supra), I find here no inter-connection, interlacing or interdependence, and no unity embracing these two opera- tions. They were kept completely separate until at the year end when, for the purposes of convenience, the proceeds of each operation were amalgamated before paying out dividends to the shareholders.

What, then, is the effect of Section 27(1) (e) on these findings of fact, namely, that the appellant was carrying on the same two businesses in 1955 and 1956? Counsel for the appellant submits that even if two businesses were carried on, they were the same business in each year and that therefore the overall business in which the loss was sustained in 1956 was the same business as the overall business carried on in 1955.

An examination of subsection (1) (e) of Section 27 shows that Parliament intended to put specific limits on the deductibility of losses. First they must be business losses as required by the opening words of subsection (e). Then a further limit is put on the deductibility of business losses by the terms of paragraph (iii), under which no amount is deductible in respect of losses from the income of any year except to the extent of the lesser of the amounts calculated in accordance with the terms of clauses

(A) and (B) thereof. Admittedly, the amount calculated under clause (A) is here the lesser and consequently the losses incurred in 1956 may be carried back and applied against the income of 1955 only to the extent of the appellant’s income for 1955 ‘‘from the business in which the loss was sustained’’. The interpretation to be put upon the last phrase, in view of the facts which I have found, will determine the success or failure of this appeal.

This phrase was considered by the President of this Court in M.N.R. v. Eastern Textile Products Ltd., [1957] C.T.C. 48. That appeal had to do with the respondent’s taxation year 1951 and the applicable section was Section 26(1) (d) of The 1948 Income Tax Act which, save for the section numbers, was identical to Section 27(1)(e) now under consideration. There the taxpayer, prior to 1951, had carried on a manufacturing business in which it had sustained heavy losses for a number of years. In 1951 it did not carry on the manufacturing business, and made a substantial profit. It was held that as the losses were incurred in its manufacturing business, they could not be carried forward and be deducted from the profits of 1951 because in the latter year, the taxpayer made no profit from manufacturing—but from something else. The same result was reached in the case of M.N.R. v. Ottawa Car and Aircraft Ltd., [1957] C.T.C. 59.

In the Eastern Textile Products case, the President rejected the submission of respondent’s counsel that the word ‘‘business’’ means whatever the taxpayer is doing from time to time. At p. 56 he stated:

“Moreover, Section 3 of the Act contemplates that a taxpayer may carry on more than one business and that concept is also embodied in Section 26(1) (d). It is well established that a company can carry on more than one business: wide, for example, Birt, Potter and Hughes, Ltd. v. C.I.R. (1926), 12 T.C. 976; Scales v. George Thompson & Co., Ltd. (1927), 13 T.C. 83, and H. & G. Kinemas, Ltd. v. Cook (1933), 18 T.C. 116. But if counsel for the respondent’s contention that the word ‘business’ in Section 26(1) (d) means whatever the company is doing from time to time were adopted it would be tantamount to saying that its business is always the same. That would, of course, make it impossible for it to carry on more than one business.

Furthermore, the adoption of the contention would make subparagraph (A) of Section 26(1) (d) (iii) meaningless. And it is a cardinal principle that an interpretation leading to such a result must be erroneous.

. . . If it had been intended to give effect to such a contention it is inconceivable that paragraph (A) of Section 26(1) (d) (iii) would have been worded as it was. Instead of using the expression ‘from the business in which the loss was sustained’ some such expression as simply ‘from the business’ would have been used. Counsel’s contention brushes to one side the limiting and definitive effect of the expression ‘in which the loss was sustained’ and amounts to a reading of the paragraph as if the limiting and definitive expression were omitted.”

That case, of course, is not precisely the same as the instant one. There the taxpayer in 1951 was engaged in a business different from that of prior years, whereas here the appellant was engaged in two businesses in 1955 and the same two businesses in 1956. The President, in the Eastern Textile case, considered the general effect of Section 26(1) (d), stating at p. 57-8:

“It seems to me that Section 26(1) (d) contemplates that a taxpayer may continue in the business in which he has previously sustained business losses or engage in some other business, either by itself or together with his former business, with varying results that need not be enumerated, but that subsection (iii), by limiting the extent of the taxpayer’s right to deduct losses to the lesser of the amounts specified in paragraphs (A) and (B) of the subsection, makes it clear that the extent of the amount that may be deducted in respect of losses from the income for any year shall never be greater but may be less than the amount of the taxpayer’s profit from the business in which the loss was sustained. From this it follows, of necessity, that if he does not make a profit from the business in which the loss was sustained, whether by reason of having ceased such business or otherwise, the extent of the amount which he may deduct in repect of losses is nil. The right to deduct losses does not extend to a profit from an activity other than the business in which the loss was sustained. It seems to me that it is contrary to the policy as declared in the section that a taxpayer should have the right to deduct from his income for any taxation year a business loss sustained in another year in a case where his income is not from the business in which the loss was sustained. Thus, if he ceases to carry on the business in which the loss was sustained and, therefore, does not make any profit from it the right to deduct a business loss does not enure to him. The purpose of the policy no longer exists.’’

I am in complete agreement with the opinion of the President that the right to deduct losses does not extend to a profit from an activity or business other than the business in which the loss was sustained. Here the losses were sustained in one business of the appellant, namely, mining, and in my view, the losses for 1956 can be carried back and deducted only to the extent of the appellant’s profit in 1955 from the same business, namely, mining. That is precisely what the respondent by his re-assessment has done.

It may be noted here that by Section 12(1) of c. 32, Statutes of Canada 1958, clause (A) of subparagraph (iii) of paragraph (e) of subsection (1) of Section 27 was repealed, and the following substituted therefor :

“(A) the taxpayer’s income for the taxation year from the

business in which the loss was sustained and his income for the taxation year from any other business, or’?

That clause, however, is applicable only to the 1958 and subsequent taxation years.

Accordingly, the appeal will be dismissed and the re-assessment affirmed. The respondent is also entitled to his costs after taxation.

Judgment accordingly. REGINA, Appellant,

and

HART ELECTRONICS LIMITED, Respondent.

Manitoba Court of Appeal (Adamson, C.J.M., Montague, Schultz and Tritschler, JJ.A.), July 8, 1959, on appeal by a stated case by Kyle, P.M.

Income Tax Act, R.S.C. 1952, c. 148—Offence under Section 126(2)—

The taxpayer’s T.2 return was submitted unsigned with an accompanying signed letter. The return contained a number of unusual answers, for example:

(a) For “documents and information”—“none available”.

(b) For “complete financial statements, including auditors’ report” —“No auditor, too costly”.

(c) For “transactions with shareholders”—“Nothing with which to remunerate, with what?” and “quite”.

(d) For “schedules or lists showing in detail”—“Nil, no aspects or prospects, no reserves, all debt doubtful, liability unlimited”, “not known, “many”, “never computed”.

(e) For “taxable income for the fiscal period”—“None known, cannot afford expensive accounting”.

In fact there was no tax payable and the lower court did not state or find as a fact that documents should have been attached to the return. The Crown charged the company with failure to comply with Section 126(2) of the Income Tax Act, R.S.C. 1952, c. 148. The charge was dismissed by the Magistrate and the Magistrate’s decision was upheld by the Court of Appeal of Manitoba.

HELD (Tritschler, J., dissenting) :

(i) That the omission to sign the return does not render that return a nullity when the return is enclosed with a signed letter (Adamson, C.J.M., Montague and Schultz, JJ.) ;

(ii) That the form T.2 which gives certain informaton, when accompanied by an explanatory letter, does constitute a valid income tax return (Adamson, C.J.M., Montague and Schultz, JJ.);

(iii) That no attempt was made to comply with the Act in the circumstances even though such compliance was possible and the return forms T.2 do not contain the elements sufficient to constitute an income tax return (Tritschler, J.).

EDITORIAL NOTE: Despite the unusual dilemma faced by the Crown, the Court has maintained a practical position. Essentially the majority of the Court holds that if no prejudice is caused to the Crown no penalty should result. This is often the attitude of the courts towards charges laid under the Income Tax Act. A technical prosecution is met by a technical judgment. This case joins the line of jurisprudence strictly interpreting the penal provisions of the Income Tax Act (The King v. Ed (N.B.), [1917-27] C.T.C. 310; The King v. Trudeau (Quebec), [1928-34] C.T.C. 310).

J. B. Hughes, for the Appellant.

J. S. Lamont, Q.C., for the Respondent.

ADAMSON, C.J.M.:—This is a stated case by Kyle, P.M., under the provisions of Sections 733 to 742 of the Criminal Code, 1953-54, c. 51.

On November 13, 1958, an information was laid alleging that Hart Electronics Limited :

At Winnipeg in the Province of Manitoba between the 2nd day of August, 1958, and the 30th day of October, 1958, inclusive, did unlawfully fail to comply with Section 126(2) of the Income Tax Act; to wit, did fail to file its income tax return on form T.2 for the taxation year 1956, following requirement therefor, dated the 17th day of July, 1958, under Section 126(2) of the Income Tax Act, contrary to Section 131(2) of the Income Tax Act.’’

The facts are stated as follows:

“ (a) On the 17th day of July, A.D. 1958, pursuant to Section 126(2) of the Income Tax Act a requirement in writing (Exhibit 1) by the Minister of National Revenue to Hart Electronics Limited for an income tax return on form T.2 for taxation year 1956 was served on Gerald A. V. Hart, an officer of Hart Electronics Limited, at 132 Osborne Street, Winnipeg, Manitoba.

(b) On the 1st day of August, A.D. 1958, Hart Electronics Limited sent a letter (Exhibit 2) to Mr. Murphy, Department of National Revenue, Federal Buildings, Winnipeg, Manitoba, enclosing T.2 1956 forms.

(c) These forms (Exhibit 3), although not signed contained certain information, but no documents were attached thereto.’’

The learned magistrate held that the T.2 1956 forms as filed constituted compliance with the requirement in writing for an income tax return on form T.2 and dismissed the charge.

The following two questions are submitted :

“1. What elements are essential to constitute an income tax return?

2. Does the form T.2 1956 as filed by Hart Electronics Limited on the 1st day of August, A.D. 1958, contain the elements essential to constitute an income tax return on form T.2 for the taxation year 1956 and thus comply with the requirement therefor by the Minister of National Revenue dated the 17th day of July, A.D. 1958.”

The duty of this Court is to decide whether the accused was or was not properly acquitted. The only question or parts of questions which require an answer are those necessary to determine the issue: Zn re Johnson; In re Slot Machine Act, [1954] S.C.R. 127; 18 C.R. 178; 108 C.C.C. 1; reversing (1952-53), 7 W.W.R. (N.S.) 193; 15 C.R. 379; 105 C.C.C. 10; R. v. Moroz (1945), 1 W.W.R. 483; 53 Man. R. 1; 83 C.C.C. 239; R. v. Stelzer (1958), 24 W.W.R. 180; 66 Man. KR. 78.

Question 1 is not a proper question. A discussion on ‘‘ What elements are essential to constitute an income tax return’’, apart from the facts as stated, would be purely academic.

Question 2 involves more than is necessary to determine whether the respondent was properly acquitted or not. The sole question is: Does the unsigned form T.2 giving ‘‘certain information” enclosed with a letter constitute an income tax return? The question is not whether the return is defective or inadequate ; the question is: Does the letter with the form constitute a return at all?

What we have to decide is not whether the magistrate arrived at the right conclusion but whether there is any evidence to support his decision. R. ex rel. Mitchell v. Kiehl, [1937] 1 W.W.R. 68; Zeats v. Johnston (1910), 3 Sask. L.R. 364; Crankshaw’s Criminal Code of Canada, 7th ed., p. 1265.

The magistrate has found that the form ‘‘although not signed contained certain information, but no documents were attached thereto’’. In our deliberations we are confined to the facts as stated.

“On the hearing the court does not resort to the evidence to find the facts but takes them as stated in the stated case”: R. v. Moroz, supra.

The appellant is bound by his statement of facts and is restricted to those facts on his appeal: R. ex rel. Scullion v. Canadian Brewers Transport Co., [1957] O.W.N. 37 ; 117 C.C.C.

37. How much or how little information the forms disclosed is not before us. All we know from the ease as stated is that a form T.2 was returned which gave ‘‘certain information’’. The fact that “no documents were attached thereto’’ means nothing by itself. It is not stated or found as a fact that there were documents which should have been attached.

The form was not signed but was enclosed with a letter. The omission to sign the form does not render the return a nullity. If a cheque had been enclosed it could not be argued that there was no return. If it appears that no tax is payable it also is a return though the form was not signed. In my opinion a form T.2, which gives certain information sent by letter though the form is not signed, does constitute an income tax return.

I would dismiss the appeal.

MoNTAGUE and SCHULTZ, JJ.A., concurred with Adamson, C.J.M.

TRITSCHLER, J.A. (dissenting) :—This is an appeal by way of stated cases against the dismissal by a summary conviction court of two charges against the accused.

The first charge is set out in the information as follows : [see ante, p. 508].

The second charge is in the same terms except that it relates to ‘‘the taxation year 1957”.

On July 17, 1958, pursuant to Section 126(2) of the Income Tax Act, R.S.C. 1952, c. 148, requirements in writing by the Minister of National Revenue to the accused for an income tax return on form T.2 for, in one case, taxation year 1956, and in the other case taxation year 1957, were served upon the accused.

The relevant parts of these requirements were as follows :

“Requirement for Income Tax Return on Form T.2 for Taxation

year 1956 (in the other case ‘1957’).

Dear Sir:

You have not filed the above-described income tax return and you are now hereby required under section 126(2) of the Income Tax Act to file that return within fifteen days from the date of this requirement.”

With each requirement were furnished forms for “Corporation Income Tax Return’? designated “T.2 Rev. 11-56”.

On August 1, 1958, the accused sent a letter to the Winnipeg office of the Department of National Revenue and with it enclosed two T.2 forms relating respectively to the years 1956 and 1957. No documents were attached to these forms.

The learned Magistrate found that the T.2 1956 and 1957 forms constituted compliance with the requirements and dismissed the charges.

In the two stated cases the same questions are put: [see ante, p. 508].

I decline to embark upon the lengthy treatise in obiter which is required by Question 1 and shall confine myself to Question 2.

The Minister, under Section 126(2), was empowered to require from the accused: (a) Any information . . . including a return of income . . .; or (b) Production . . . of any accounts, invoices, statements (financial or otherwise) or other documents.

Section 126(6) provides:

“. . . notwithstanding any other law to the contrary, every person shall, unless he is unable to do so, do everything he is required by or pursuant to this section to do.’’

The documents and information required by the said T.2 forms were matters which the Minister was so empowered to require.

The accused’s manner of dealing with the aforesaid requirements of the Minister is best shown by reproducing the letter (addressed to the Department of Internal Revenue, Winnipeg) and forms:

‘‘Tn reply to your letters of July 17 th, reference C. Murray, I beg to differ with you in connection with the statement in your first paragraph as a T.2 return was filed for 1956, whether you and your blood-hounds wish to admit it or not.

However, I have taken the precaution of keeping copies this time, as it is a known fact that your huge overstaffed department have often mislaid documents and attempted to put the blame upon the docile public.

You may not like or understand my method of completing these documents but as I explained to your henchmen, I am no accountant, and never wish or hope to be. Consequently, my answers are made in all sincerity and to the best of my ability and it is to be hoped that you will accept them as such.”’

The essential parts of the 1956 and 1957 forms as set in by the accused are appended to these reasons.

Counsel for the accused, who frankly described the responsible officer of the accused as a ‘‘temperamental person with a strong dislike for bureaucrats’’, conceded that the returns were “very bad” and ‘‘defective’’ but submitted in his factum that the return made ‘‘no matter how defective is a sufficient answer’’ to the Minister’s requirement.

I cannot accept this view. To describe the returns made by the accused as ‘‘defective’’ is to dignify them beyond their deserts. If these were merely defective returns the accused was entitled to an acquittal but a line can be drawn between a merely defective return and one which does not qualify as a return at all. In this case I think that line may be drawn without difficulty. Giving the accused the benefit of any doubt, it cannot be said that it did what was required or indeed that it made any attempt at compliance.

One heading of the forms is ‘Documents and Information Required’’, and later appears ‘‘The following must be attached, where applicable”. On the right-hand side of the form opposite items 1 and 2(a) to (1), the corporation is required to indicate by check marks whether the required statements, schedules, etc., are ‘‘Attached’’ or ‘‘Not Applicable’’. No check marks are inserted and no statements or schedules of any kind were attached. The comment ‘‘ None available’’ following the heading “Financial Statements and Schedules’’ gives none of the information required by the Minister. If there was ‘‘ None available” they should have been prepared. The requirement for the attachment of “1. Complete financial statements, including auditor’s report’’ is not met by the comment “no auditor, too costly”. Many taxpayers, perhaps the majority, have no auditors but nevertheless prepare their own “financial statements’’.

Item 2 required the attachment of ‘‘Schedules or lists showing in detail certain matter described in subparagraphs (a) to (i) inclusive. These requirements could only be satisfied by preparing where applicable the schedules or lists and attaching them to the form. The comments ‘‘nil’’, ‘‘no aspects or prospects”, ‘‘no reserves, all debt doubtful, liability unlimited”, “not known’’, ‘‘many’’, ‘‘never computed’’ are neither informative nor responsive to the requirements.

The questions under the heading ‘‘Transactions with Shareholders” are required to be answered with a simple ‘‘ Yes’’ or “No”. The comments ‘‘nothing with which the remunerate’’, ‘What with?’’ and ‘‘quite’’ are again neither informative nor responsive and do not comply with what was required.

In the boxed-in space near the end of the form the corporation is required to state the amount of “Taxable Income for Fiscal Period’’. This is not answered by the comment ‘‘not known, cannot afford expensive accounting’’; nor is the requirement to state the amount of “Tax Payable after deducting tax allowances’’ complied with by the comment ‘‘cannot afford domestic tax, what say foreign handouts’’. The accused shows “Balance of Tax Payable’’ as ‘‘nil’’ but this must be read in the light of its previous answer that it did not know what was its taxable income.

The return required by the Minister was required by him, in the form, to be certified as “a true, correct, and complete return”. Neither form was certified or signed. Indeed no one could with truth have certified either of these forms in the words required and the accused’s failure to complete the certification was probably not due to oversight. The Act provides penalties for

“False or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act . . .” (Section 182(1) (a).)

The letter of August 1 which accompanied the forms gives no information. The only reference that requires consideration is the statement “My answers are made in all sincerity and to the best of my ability.” Counsel for the accused made no such case. He did not attempt to submit that it had been actually impossible for the accused to give any of the information required by the Minister or that, for example, over a 24-months period the accused could not give a single figure of income or outgo. Even if, as was not faintly suggested, the accused kept no books or records, a reconstruction from memory would have achieved some particulars. An unsigned and uncertified form which makes no “return of income’’ does not become one by statements such as are contained in the accused’s covering letter.

It is plain that the accused could have complied, at least in part, with the Minister’s requirements. Indeed Counsel for the accused agreed during argument that he would see to it that proper returns were filed if Counsel for the Crown would agree to such a termination of the matter.

The forms T.2. 1956 and 1957 as filed by the accused on August 1, 1958, did not contain the elements essential to constitute an income tax return on form T.2. for the taxation years 1956 and 1957 and did not comply with the requirements therefor by the Minister of National Revenue dated July 17, 1958. In each case I would answer Q.2. in the negative. In both cases the determination of the learned magistrate is reversed and the case remitted to the summary conviction court.