MNR v. Panther Oil & Grease Manufacturing Co. of Canada Ltd., 61 DTC 1222, [1961] CTC 363 (Ex Ct)

THORSON, P.:—This is an appeal from the decision of the Income Tax Appeal Board, dated October 4, 1957, allowing the respondent’s appeal against its income tax assessments for 1952, 1953, and 1954.

On December 7, 1959, the name of the respondent was changed to Texas Refining Corp. of Canada Limited. If there should be any doubt whether the judgment herein is applicable to the respondent under its new corporate name leave to amend the style of cause herein in such manner as to remove any ground for doubt is hereby granted.

The respondent was incorporated under the laws of Ontario in 1948 and has carried on its business throughout Canada ever since. Its business has been and still is the manufacture and sale of roofing materials and the sale of other products, including oil and grease lubricants, purchased by it from various sources. The manufacture of its roofing materials is done at its factory at Leaside near Toronto and the sale of its products is through a large force of salesmen organized under the direction of its sales office at Fort Worth in Texas. The manner in which it carried and carries on its business will be described in detail later, but it is sufficient for the time being to state that in each of the years 1952, 1953, and 1954 it did a substantial portion of its business in the Province of Quebec and paid income tax to it on the taxable income earned by it in the year in that province.

Consequently, in each of its income tax returns for its 1952, 1953 and 1954 taxation years the respondent claimed a deduction from the tax otherwise payable by it for the year of an amount equal to the applicable percentage of the taxable income earned by it in the year in the Province of Quebec. In respect of 1952 its claim was made under Section 37 of the Income Tax Act, Statutes of Canada, 1948, Chapter 52, as enacted in 1952 by Section 13 of Chapter 29 of the Statutes of Canada, 1952, which provided as follows :

‘37. (1) There may be deducted from the tax otherwise payable by a corporation under this Part for a taxation year an amount equal to 5% of the corporation’s taxable income earned in the year in a province prescribed by a regulation made on the recommendation of the Minister of Finance.

(2) In this section, ‘taxable income earned in the year in a province’ means the amount determined under rules prescribed for the purpose by regulations made on the recommendation of the Minister of Finance.”

and in respect of 1953 and 1954 its claims were made under Section 40 of the Income Tax Act, R.S.C. 1952, c. 148, as amended by Section 59(1) of Chapter 40 of the Statutes of Canada, 1952-1953, which provided as follows :

“40. (1) There may be deducted from the tax otherwise payable by a corporation under this Part for a taxation year an amount equal to

(a) in the case of a corporation of a class prescribed by a regulation made on the recommendation of the Minister of Finance for the purposes of this paragraph, 5%, and

(b) in the case of any other corporation, 7%

of the corporation’s taxable income earned in the year in a province prescribed by a regulation made on the recommendation of the Minister of Finance.

(2) In this section, ‘taxable income earned in the province’ means the amount determined under rules prescribed for the purpose by regulations made on the recommendation of the Minister of Finance.”

It is also important to refer to Sections 400, 401 and 402 of the Income Tax Regulations. They were referable to Section 37 of the 1948 Income Tax Act and to Section 40 of the Income Tax Act as TI have set it out. Section 400 of the Regulations prescribed the Province of Quebec as the province referred to in Section 37 of the 1948 Act and, in its amended form, to the province referred to in Section 40 of the present Act and, in its amended form, it prescribed the classes of corporations referred to in Section 40 of the present Act. As amended, Section 400 of the Regulations read as follows :

“400. (1) The Province of Quebec is the province prescribed for the purpose of section 40 of the Act.

(2) For the purpose of paragraph (a) of subsection (1) of section 40 of the Act, the following classes of corporations are prescribed:

(a) corporations that are taxable under the provisions of section 3 of the Quebec Corporation Tax Act and that are not taxable under the provisions of section 6 of the Quebec Corporation Tax Act, and

(b) . . .

The respondent came within the class of corporations thus prescribed in Section 400(2) (a) of the Regulations.

So far there is no obstacle in the way of its claims. The difficulty arises from the regulations prescribing the rules according to which the amount of ‘‘taxable income earned in the province”, within the meaning of Section 37(2) of the 1948 Act and Section 40(2) of the present Act, is to be determined. Section 401 of the Regulations, in its amended form, provided:

“401. For the purposes of subsection (2) of section 40 of the Act, the amount of taxable income earned in a taxation year in a provinve shall be determined as hereinafter set forth in this Part.’’

In its earlier form Rule 401 referred to subsection (2) of Section 31 of the 1948 Act.

The general rules are set out in Section 402 of the Regulations. Subsection (2) of Section 402 provided as follows :

“402. (2) Where, in a taxation year, a corporation had no permanent establishment ; in the province, no part of its taxable income for the year shall be deemed to have been earned in the province.”

If this subsection is applicable to the facts in the present case then the respondent is not entitled to the deduction claimed by it and the Minister’s appeal must be allowed. But it is contended for the respondent that it comes within subsections (3) and (4) of Section 402 of the Regulations which provided that:

“Except as otherwise provided, where, in a taxation year, a corporation has a permanent establishment in the province and a permanent establishment outside the province”?

the amount of its taxable income earned in the year in the province shall be determined according to the rules set out in paragraphs (a) or (b) of subsection (3) or that it shall be determined according to the formula set out in subsection (4). It is not necessary to set out either the rules referred to in subsection (3) or the formula referred to in subsection (4) for it is agreed that if the respondent, in the years under review, had a permanent establishment in the Province of Quebec, within the meaning of the Regulations, it is entitled to the deductions claimed by it.

In assessing the respondent for each of the years in question the Minister disallowed the deductions claimed by it on the ground that, in such years, it did not have a permanent establishment in the Province of Quebec within the meaning of the Regulations, and that, consequently, no part of its taxable income for the year should be deemed to have been earned in that province.

The respondent objected to the assessments levied against it but the Minister confirmed them and the respondent appealed against them to the Income Tax Appeal Board, which allowed its appeal and set the assessments aside. It is from that decision of the Income Tax Appeal Board that the Minister brings this appeal.

Thus, the sole issue in the appeal is whether the respondent, in the years 1952, 1953 and 1954, had a permanent establishment in the Province of Quebec, within the meaning of the Regulations. If it did the appeal must be dismissed.

The determination of the issue requires consideration of Section 411 of the Regulations which, so far as relevant, provided as follows :

“411. (1) For the purpose of this Part,

(a) permanent establishment’ includes branches, mines, oil wells, farms, timber lands, factories, workshops, warehouses, offices, agencies, and other fixed places of business ;

(b) where a corporation carries on business through an employee or agent who has general authority to contract for his employer or principal or has a stock of merchandise from which he regularly fills orders which he receives, the said agent or employee shall be deemed to operate a permanent establishment of the corporation ;’’

and depends on whether the facts of the manner in which the respondent carried on its business in the years under review establish that in such years the respondent had a ‘‘ permanent establishment’’ in the Province of Quebec, within the meaning of the Regulations.

The facts are not in dispute. Evidence for the respondent was given by Mr. A. M. Pate, its president from 1948 to 1961 when he became chairman of its board, Mr. G. Billingsley, its secretary and treasurer, and Mr. C. A. Tessier, its division manager for the Province of Quebec since January 1949. No witnesses were called for the appellant.

Before I deal with the meaning of the term ‘‘permanent establishment’’, as used in the Regulations, and the meaning of the various terms included in it by Section 411(1) (a) of the Regulations, such as, for example, ‘‘branches’’, ‘‘offices’’ and “agencies”, and the ambit of the situations referred to in Section 411(1) (b) of the Regulations I should review the evidence of how the respondent organized its business in Canada, particularly in the Province of Quebec in the years under review. The evidence on this is clear. While its chief place of business in Canada was said to be at Leaside all that was done there was to manufacture its roofing materials, package and label its products, both those of its own manufacture and those which it purchased from various sources and ship them to the customers to whom they had been sold. The factory at Leaside was managed by a vice-president in charge of production with a staff of 12 employees inclusive of himself. He had no jurisdiction over sales or the respondent’s sales force.

The respondent sold its products in all the provinces of Canada direct to users of them and not to wholesalers or jobbers. It did so exclusively through salesmen of whom it had a large force. They were recruited through want advertisements in the papers and magazines and by direct solicitation by the respondent’ S division and direct managers.

The respondent’s head sales office was at Fort Worth in Texas. Its general sales manager was there with his assistant sales managers and his staff of clerks. The formal hiring of salesmen was done from there and it was from its salesmen that its district and division managers were appointed.

The respondent’s sales organization in Canada was divided into five divisions, namely, the Maritime Provinces, Quebec, Ontario, the Prairie Provinces and British Columbia. Of these the Quebec division was the finest and most completely organized with the largest number of district managers and salesmen. In the years in question, according to Mr. Pate, the respondent had a force of over 200 salesmen in Quebec who were organized under Mr. C. A. Tessier of Hull, the respondent’s division manager for Quebec, who had from 13 to 15 district managers under him.

The exact figures of producing salesmen in Quebec, shown on Exhibit 1, were as follows, namely, in 1952, 536 salesmen in Canada with 189 in Quebec, in 1953, 545 in Canada with 167 in Quebec and in 1954, 703 in Canada with 151 in Quebec. In addition the respondent had from 50 to 75 salesmen in Quebec who had its equipment but had not yet produced any orders.

Mr. Pate gave a general description of the manner in which the respondent’s sales organization in Quebec operated, explaining, inter alia, the duties of its salesmen, district managers and division manager and how they were carried out, the nature and extent of their authority and how it was exercised and the manner of their remuneration. More detailed evidence of these matters was given by Mr. Tessier who has been respondent’s division manager for Quebec since 1949.

I shall first summarize the evidence relating to the duties of the respondent’s salesmen, district managers and division managers. When a salesman was hired he signed a sales agreement with the respondent, which set out the conditions under which he was to sell merchandise for it and draw commissions on the sales made by him. The sales agreement, a sample of which was filed as Exhibit 11, provided that the salesman desired to sell merchandise for the respondent and that all orders were subject to its approval and were filled by it. It set out the commission that the salesman was to receive and the circumstances under which he was entitled to a bonus. It also provided:

7. The SALESMAN is to be left free to select and follow the methods he deems best in the handling of his part of the agreement. He shall be free to work where and when he pleases. He may use such methods and means as in his judgment appear proper in order to accomplish the ends and results specified in this agreement; for which ends and results he alone shall be responsible or accountable to PANTHER. He shall have no power or authority to bind PANTHER, nor shall PANTHER be responsibile for any of his acts. PANTHER shall have no direction or control over where, or how or when, or with whom he shall go or upon whom he shall call. All such matters are left to the SALESMAN’S good judgment.”

This sales agreement related to the sale of the respondent’s roofing materials and other specified products but did not cover the sale of its lubricants. The salesman started out with the lines specified in this agreement and was later given the lubricants line. There was a separate sales agreement covering this line but in most cases the salesman was not asked to sign it. His district manager or the division manager simply told him to start selling the lubricants and provided him with samples, price lists and his commission schedules.

It was the saleman’s duty to call on prospective users of the respondent’s products. Indeed, it sold its products exclusively through its salesmen including therein its district managers and division managers, who in addition to the performance of their managerial duties were also salesmen. The respondent’s customers were owners of buildings, either private residences or commercial buildings, such as hotels, or municipal buildings. The salesmen sold only the respondent’s products leaving the matter of applying them to the purchasers. Whenever a salesman received an order it was his duty to enter the particulars in an order blank, a sample of which was filed as Exhibit 10, supplied by the respondent which both he and the customer signed. Subject to what will be said later it was the salesman’s duty to send the signed order to the respondent’s sales office at Fort Worth to be processed there. If it was accepted the products were shipped to the customer from the respondent’s factory at Leaside and if the sale was on terms an invoice for the price was sent to the customer from the sales office at Fort Worth. The salesmen were required to report daily on the orders received by them to the Panther Company, Box 711, Fort Worth, Texas, the respondent’s sales office. Some of them worked on a full time basis and others only on part time.

I now turn to the duties of the respondent’s district and division managers. They were never hired as such but were appointed from its salesmen and notified of their appointment by letter from the sales office at Fort Worth. The district managers were appointed on the advice of the division manager and the division manager by the sales manager at Fort Worth. On their appointment they were not required to sign new contracts. They were still salesmen.

Before I set out the evidence relating specifically to the duties of the district managers I summarize the evidence bearing on the duties of Mr. Tessier, the respondent’s division manager for Quebec. He joined the respondent as a salesman on its incorporation in 1948. He had previously been a salesman for its predecessor, referred to as the Texas Corporation. He was made division manager at a convention of the respondent at Fort Worth in Texas in January 1949 by the respondent’s board of directors and has been its division manager for Quebec ever since. He was notified of his appointment as division manager by a letter which has since been destroyed. He signed on as a salesman with the Texas Corporation in 1947 but does not remember whether he signed a sales agreement when he joined the respondent after its incorporation in 1948, and a search for any such agreement has failed to show its existence. Although he was the respondent’s division manager he was also a salesman and it was his duty as such to sell its products but his duties as division manager were primarily of a supervisory character. It was part of his duty to recruit salesmen. He had copies of the sales agreement above referred to, signed by Mr. A. B. Canning, the President of the Texas Corporation and Vice-President of the respondent, and when he recruited a salesman he had him sign the agreement and sent it to the sales office at Fort Worth. He was required to assist in the training of new salesmen and send in monthly training reports of the salesmen recruited by him. One of his functions was to bring salesmen up from the ranks who would be qualified to make good district managers and to see that they functioned properly. In order to assist in the training of salesmen and the supervision of district managers he held meetings of district managers and their salesmen three or four times a year. About once a year he held a provincial meeting of all his district managers and their salesmen. He visited every district in his division at least once a year and some of them three or four times. In the Montreal district he held five or six meetings a year. He paid his own transportation expenses in attending these meetings but the respondent paid the expenses of meetings of the district managers. Mr. Tessier travelled from 40,000 to 50,000 miles per year in the performance of his duties. About 50 percent of his time was spent in direct selling of the respondent’s products, about 25 percent in working with his district managers and their salesmen and the balance in checking with customers and correspondence. It was one of his duties to look into customer’s complaints, which were very few in number, and to make adjustments when they were necessary. He was also required to look into delinquent accounts of which there were quite a few. It was also his duty to send daily, weekly and monthly reports to the sales office at Fort Worth. He devoted his full time to the service of the respondent as its division manager for Quebec and had no other occupation. He carried on his duties from an office in his own home at Hull. This was in a residential district and there was no sign or other indication that the respondent had an office there. All the equipment in the office belonged to him. He had a telephone there for which he paid himself. It was listed only under his own name and there was no listing of it in the yellow pages. The respondent supplied him with letterheads carrying its own name, the Panther Company, and showing him as its division manager with his address in Hull and his telephone number. All correspondence addressed to the respondent at Hull reached Mr. Tessier at this office and he used from 1,000 to 2,000 copies of the letterhead per year in the course of his business on behalf of the respondent. He paid all the expenses of his office, including postage and telephone charges and all the expenses of transportation by his own automobile.

The duties of the district managers may be described briefly. Their primary duty since they were salesmen was to obtain a good personal volume of sales and to develop and work with the salesmen in their districts. It was part of the district manager’s duty to recruit new salesmen, and get them to sign a sales agreement, give them a selling kit so that they could start selling immediately and train them in their efforts. The division and district managers were required to put in 75 days per year in training field men, and were required to make monthly training reports. And, as in the case of the division manager, the district managers had to send daily, weekly and monthly reports to the sales office at Fort Worth. Most of them had offices in their homes which they maintained at their own expense and they could obtain company letterheads from the respondent by asking for them. The district managers were on a full time basis.

Notwithstanding the term in the sales agreement to which I have referred that the salesman should have no authority to bind the respondent, the division manager and the district managers had, in actual practice, a substantially wide authority. Here I summarize Mr. Tessier’s evidence on the subject. While he had no power to sign the sales agreement he had power to hire salesmen in the sense that he was authorized to get them to sign the agreement, equip them with a selling kit and send the agreement to the sales office at Fort Worth. The district managers had similar powers. Mr. Tessier and his district managers had indirect authority to dismiss salesmen in the sense that if a salesman did something crooked they could ‘pick up his selling kit and tell him that he was fired’’. Their recommendations for dismissal were submitted to the sales office at Fort Worth and were always followed.

The authority to accept orders for the respondent’s products was clearly defined. When Mr. Tessier obtained an order he had the customer sign it on the form provided by the respondent for the purpose and sent it either directly to the factory at Leaside or to the sales office at Fort Worth. If the order was for cash or C.O.D. he sent it to Leaside. If it was on a term basis he sent it to Leaside if the customer was an old one whose credit was established or if he had a good rating in Dun and Bradstreet. If there was some question as to the customer’s credit and he did not have a good credit rating Mr. Tessier sent the order to the sales office at Fort Worth and awaited its decision. He would know that it had been accepted only when he was informed to that effect by letter or received his commission statement. When Mr. Tessier sent an order to the factory at Leaside the goods were always shipped to his customer and if the sale was on terms the invoice was sent to the customer from the sales office at Fort Worth.

The factory at Leaside had been notified that when orders were received from Mr. Tessier it was to fill them and it never refused any orders sent in by him. Indeed, the factory at Leaside had nothing to do with credit or sales and Mr. Tessier was not responsible to it. From 80 to 85 percent of his orders went direct to Leaside to be filled there without reference of them to the sales office at Fort Worth.

The authority of the district managers to deal with orders was similar to Mr. Tessier’s.

The division and district managers also had authority to recommend adjustments and their recommendations were never turned down.

The respondent’s salesmen were remunerated by commissions on the orders turned in by them and accepted by the respondent. The rates were fixed by the sales agreements which the salesmen were required to sign or by a schedule of rates for the sale of lubricant products in cases where a separate sales agreement in respect of them was not required.

No salaries were paid to the district manager or to the division managers. The remuneration of the district managers consisted of commissions on the sales made by them, which were the same as those paid to the salesmen, together with an over-riding commission of 5 per cent based on their own sales and those of the salesmen in their districts. This over-riding commission was their remuneration for their managerial duties in recruiting salesmen, training them and developing sales in their districts and their compensation for expenses incurred by them in the discharge of their managerial duties.

Mr. Tessier, as division manager for Quebec, received the usual salesman’s commission on all the sales made by him plus a 2 percent over-riding commission on all the sales made by the salesmen in the division. The purpose of this was to remunerate him for the discharge of his supervisory duties and reimburse him for his office and operating expenses.

The particulars of the earnings of the Quebec salesmen, district managers and division manager in the years under review were set out in Exhibits 2, 3 and 4. They show that Mr. Tessier’s total earnings came to $14,897.24 in 1952, $12,399.94 in 1953 and $12,701.70 in 1954. The earnings of the district managers in the years under review ran from $797.97 to $13,951.60 per year and those of the salesmen from $3 to $4,568.91.

The respondent’s sales organization was not of a temporary nature. It was in full force during the years under review and had existed previously. Indeed, the respondent, on its incorporation in 1948, inherited much of it from its predecessor. And it has continued since 1954. Mr. Tessier, as already stated, has been with the respondent and its predecessor ever since 1947 and the same is true of most of the district managers and many of the salesmen. This is true in spite of the fact that the yearly turnover in salesmen has been very great, which fact called for continuous efforts to recruit new ones. It is also true that even when the respondent’s products were manufactured at Fort Worth, prior to the leasing of its factory at Leaside, its sales force organization was similar to its present one.

I should add that the respondent did not own or lease any building in Canada except the factory at Leaside. At Fort Worth there was a staff of approximately 60 persons who devoted their full time to the sales operations of the respondent in Canada. They were paid in United States funds and their salaries and the rent on the space occupied by them were charged by the respondent as operating expenses.

Only a brief reference need be made to the evidence of Mr. Billingsley, the respondent’s secretary and treasurer since its incorporation. He produced several tables. One of them showed the percentages of the sales in Quebec of the total sales in Canada in the years in question, namely, 30.2 percent in 1952, 27.16 in 1953 and 26.79 in 1954. There were more sales in Quebee in these years than in any of the respondent’s other divisions. Another table emphasized the fact that the respondent’s sales organization was the most important part of its business. It showed that the cost of selling the respondent’s products in Canada was four times as great at the cost of manufacturing them. There is an illustration of this in the fact that at Leaside only 12 persons were employed whereas in Quebec alone there were approximately 200 persons engaged in selling. Another table was described as an analysis of the Quebee corporation income tax and the credits claimed by the respondent. In this connection it was agreed that if the appeal herein should be dismissed and the respondent succeed in its appeals against the assessments levied against it they should be reduced by the following amounts, namely, $404.96 for 1952, $437.49 for 1953 and $2,241.98 for 1954.

There is only one other aspect of the evidence that needs to be regarded. Section 411(1) (b) of the Regulations provides that where a corporation carries on business through an employee or agent who has general authority to contract for his employer or principal or has a stock of merchandise from which he regularly fills orders which he receives, the said agent or employee shall be deemed to operate a permanent establishment of the corporation. Section 411(1) (b), in my opinion, is an enlargement of Section 411(1)(a). I have already referred to the evidence of the authority of the division manager and the district managers to contract for the respondent and I need not comment further on it. But I should refer to the evidence bearing on whether Mr. Tessier or any of his district managers had a stock of merchandise from which he regularly filled orders which he received. Mr. Tessier’s evidence on this was clear and it was confirmed by Mr. Pate. When Mr. Tessier was asked whether he had warehouse facilities his answer was in the affirmative. He had a cellar and his garage. There he kept some of all the products that the respondent had for sale. He owned some of the stock and the respondent owned some. His own stock varied in value from $500 to $2,000. Mr. Tessier explained that the respondent did not deliver less than 15 gallons of roof coating or 25 gallons of lubricants. Some customers wanted less and some wanted immediate delivery. If a customer wanted larger amounts the order was sent to Leaside and it would take about ten days for processing. Mr. Tessier kept stock for filling small orders, for making adjustments, for giving samples to salesmen for demonstrations, and for quick deliveries. Most of the district managers operated in the same way as he did, keeping stocks of the respondent’s products for filling orders for small quantities or for quick delivery when it was demanded. Some of the district managers kept large stocks. For example, the district manager at Chicoutimi had a stock of over $5,000 in value and the district manager at Quebec carried quite a large stock. The practice thus described by Mr. Tessier has been in effect ever since he started to work for the respondent.

The only question in the present case is whether the respondent, in each of the years 1952, 1953 and 1954, had a permanent establishment in the Province of Quebee within the meaning of the Regulations. If it did not then, pursuant to Section 402(2) of the Regulations, ‘‘no part of its taxable income for the year shall be deemed to have been earned in the province’’ and it is not entitled to the deductions claimed by it.

Counsel for the appellant contended, in effect, in respect of Section 411(1) (a) of the Regulations, that the use of the expression ‘‘other fixed places of business” therein indicated that a fixed place of business was an essential requirement of a “permanent establishment’’, as contemplated by the Regulations, and of each of the subjects included therein. Thus, for example, the meaning of the terms ‘‘branches’’ and “agencies”, according to the contention, must be limited to branches or agencies having “fixed places of business’’, that ‘‘branch’’ means a local place of business from which part of the taxpayer’s business is conducted, that ‘‘agency’’ means a local place of business from which an agent acts for the taxpayer and that since the respondent did not, in the years in question, own or lease any fixed place of business in Quebec it could not have had a “permanent establishment’’ in the province within the meaning of the Regulations in any of such years.

In support of his contention that the terms ‘‘branches’’ and “agencies” in Section 411(1) (a) mean branches or agencies having fixed places of business counsel relied on the ejusdem generis rule of construction and the maxim noscuntur a sociis. As I understand the rule it is that when a general word follows particular and specific words of the same genus as itself it takes its meaning from them and is presumed to be restricted to the same genus as that of the particular and specific words which precede it. But the construction for which counsel for the appellant contends is the converse of the rule, namely, that the general words ‘‘other fixed places of business” govern and limit the meaning of the particular and specific terms that precede them. In my view, neither the ejusdem generis rule nor its converse, if there is one, has any application in the present case for the simple reason that the terms included in the expression “permanent establishment’’ by Section 411(1) (a) of the Regulations do not designate subjects of the same genus and there is, consequently, no room for the application of the ejusdem generis doctrine or the Latin maxim referred to: vide Maxwell on Interpretation of Statutes, 10th Ed., at pages 337-347. It follows, accordingly, that the terms ‘‘branches’’ and ‘‘agencies’’ must be œiven their ordinary meanings without being affected by the expression ‘‘other fixed places of business.’’

The Shorter Oxford English Dictionary gives several meanings to the word ‘‘branch’’. Its first one is, of course, its natural meaning, as follows:

“1. A portion or limb of a tree or other plant growing out of the stem or trunk or out of one of the boughs.

2. transf. Anything analogous to a limb of a tree, in relation to the trunk ME.’’

and the following figurative uses of the word are given.

“3. fig. a. One of the portions into which a family or race is divided according to the differing lines of descent from a common ancestor; hence a division, a group. ME.

b. A child, descendant; cf. scion,

4. fig. A consequence of a principle; an effect of a cause 1526.

5. fig. A division; a subdivision; a department 1509.

6. fig, A component portion of an organization or system 1696.

7. fig. A local and subordinate office of business 1817.”

Webster’s New International Dictionary, 2nd Ed., gives a great many meanings to the word including the following :

“2. Any division extending like a branch; any arm or part connected with the main body of a thing; a ramification; as a branch of an antler, a chandelier, or a railroad.

4. A member or part of any complex body or work; a distinct article, section, subdivision, or department; as a branch of the military service; branches of knowledge.

5. Specif; a. A subordinate local office or part of a central system of business, usually occupying indepent quarters; as a branch of a library or post office.’’

And so does Funk and Wagnall’s New Standard Dictionary of the English Language. It includes the following :

“2. A separate or diverging part or offshoot; division; department; subordinate or coordinate class, as a branch of business; a branch of science; the Scotch branch of the family.

9. A subordinate local office, store, etc., as, a branch bank.”

Thus it is clear, in my opinion, that while the word “branch” includes a local and subordinate office, as counsel for the appellant contended, it also includes a component portion of an organization or system or a section, division, subdivision or department of a business. Consequently, I have no hesitation in finding that in each of the years under review the respondent had a branch in Quebec in the sense that it had a component portion of its sales organization there. It was primarily a selling organization and it had an important division of its business in the Province of Quebec. It had, therefore, a branch in the Province of Quebec wthin the meaning of the word ‘‘branches’’ in Section 411(1) (a) of the Regulations and, consequently, by reason of the section it had a ‘‘permanent establishment” in Quebec within the meaning of the Regulations. This finding is sufficient in itself to dispose of the appeal herein in the respondent’s favor, but I need not stop there, for there are further reasons for dismissing it.

In my opinion, the respondent, in the years under review, had an agency or agencies in the Province of Quebec. The Shorter Oxford English Dictionary gives the following meanings for the word ‘ agency ’ ’ :

“1. The faculty of an agent, or of acting; action 1658: intermediation 1674.

2. Action personified 1784.

3. Comm. The office or function of an agent, or factor 1745.

4. An establishment where business is done for another 1861.”

Webster’s New International Dictionary, 2nd Ed., gives the following meanings:

“1. Faculty or state of acting or of exerting power; action: instrumentality.

2. Office or function of an agent, or factor; business of one entrusted with the concerns of another; as an agency for a well-known typewriter ; an advertising agency; an employment agency.

3. The place of business or the district of an agent.

4. Specif., in the United States, an Indian agency, or the district of a government agent established in or near an Indian reservation, to have charge of its interests.’’

And the following synonyms are given, namely, action, operation, efficiency, management; intermediation, instrumentality.

It is, in my view, clear that, while the term ‘‘agency’’ does include a local place of business from which an agent acts for his principal, that is only one of its meanings. It is also clear that Mr. Tessier had an agency in Quebec for the respondent in the sense that he was entrusted with the management of its selling organization in the province and was a selling agent for it. The same is true of the respondent’s district managers. There is no doubt in my mind that just as Mr. Tessier and the district managers in Quebec had agencies for the respondent it had agencies in them in the sense that they were its instrumentalities for the conduct of its sales in Quebec. Indeed, the only way in which it sold its products in Quebec was through its several agencies in Quebec in the persons of Mr. Tessier and its district managers. I find, therefore, that, in the years under review, the respondent had agencies in the Province of Quebec within the meaning of Section 411(1) (a) of the Regulations and, consequently, a permanent establishment in the province within their meaning.

I refer only briefly to the term ‘‘office’’. In M.N.R. v. Sunbeam Corporation (Canada) Ltd., [1961] C.T.C. 45, Cameron, J., held that the term ‘‘office’’, as used in Section 411(1) (a) of the Regulations means an office owned by the taxpayer. On the argument before me counsel for the respondent submitted, subject to the said decision, that the term ‘‘office’’ means the office from which the business of the taxpayer is conducted, that Mr. Tessier’s office met this requirement and that, consequently, the respondent had an office within the meaning of the section in the sense that it was an office from which its business was conducted through Mr. Tessier, its agent and division manager. In view of the fact that notice of appeal from the judgment in the Sunbeam Corporation case has been given I make no comment on counsel’s submission on this point.

I now come to the expression “permanent establishment”. I have already referred to the contention of counsel for the appellant that a fixed place of business is an essential requirement of a permanent establishment, as contemplated by the Regulations. His submission was that a taxpayer could not have a permanent establishment within their meaning unless he had a fixed place of business or something permanent in the form of a building owned or rented by him and that, since this essential requirement was missing in the respondent’s case, it was not entitled to the deductions claimed by it. In suport of his submission he referred to the decisions in the following eases, namely, Re Clancy (1852-55), 16 Beav. 295 at 296; Hill v. Jones (1854), 23 L.T.R. 253; A.-G. v. Hull (1852), 9 Hare 647 at 648; and Lord Advocate v. Huron and Erie Loan and Savings Co., [1910-11] S.C. 612 at 616. In my view, they have no bearing on the question under consideration.

I cannot accept counsel’s submission. There is nothing in Section 411(1) (a) that restricts the meaning of the expression “permanent establishment’’ to a permanent establishment having a fixed place of business or a building. The words ‘‘other fixed places of business”? in the section do not limit its meaning and have no bearing on it. While the expression, according to Section 411(1)(a), includes the various subjects referred to therein, they do not constitute an exhaustive definition of it and the section does not include its ordinary meaning.

Resort may, therefore, be had to the standard dictionaries in order to ascertain its ordinary meaning. There is no difficulty about the word ‘‘permanent’’ in the context in which it is used. The Shorter Oxford English Dictionary defines it as follows:

“1. Lasting or designed to last indefinitely without change ; enduring; persistent: opp. to temporary.

2. Of persons: Continuing steadfast in a course 1548.

3. absol. The p. that which endures or persists 1826.’’

It is clear that what is meant by a “permanent establishment” is that it should not be a temporary one. In the present case the facts prove that if the respondent had an establishment in Quebec in the years under review it was a permanent one in the sense that it was not temporary. It had been in existence prior to 1952, it continued during the years under review and it has been in existence ever since.

The word ‘‘establishment’’ has several meanings. The Shorter Oxford English Dictionary sets them out as follows :

“1.1. The action of establishing; the fact of being established (see the vb.) 1596. 2. Established or stable conditions

—1777; organization, footing — 1799. 3. That which establishes or strengthens — 1646. 4. Settlement in life; (formerly often) marriage 1684; settled income or provision 1727.

II. 1. That which is established; a settled constitution or government — 1793. 2. The ecclesiastical system established by law; the Church E. 1731. 3.a. A permanent military, naval, or civil organization. b. The quota of officers and men in a regiment, ship, etc. 1689. 4. An organized staff of employees or servants, including, or occas. limited to, the building in which they are located 1832. b. A household, family residence 1803.’’

The various meanings of the word are given in Webster’s New International Dictionary, 2nd Ed., as follows:

“1. Act of establishing, or state or fact of being established ; also, Obs., means of establishing. Esp.: a. The establishing by law of a church or religion, etc. b. Obs. State of being settled or determined; stability; also, established confidence.

c. Permanent settled position in life, as in business; also, regular means of support; income.

2. That which is established; as a. A settled arrangement or order esp. a rule, decree, law, or code of laws; specif., pl., the English ordinances or statutes of the reign of Edward I; also, the Establishments of St. Louis (which see). b. A form of government; esp., an established ecclestiastical system or church ; — often uesd, specif., (usually cap.) with the, of the espiscopal establishment of England (cf. Anglican), or the Presbyterian one of Scotland. e. A permanent civil, military, or commercial force or organization. d. The place where one is permanently fixed for residence or business; residence, including grounds, furniture, equipage, retinue, etc., with which one is fitted out; also an institution or place of business, with its fixtures and organized staff; as large establishment ; a manufacturing establishment.

3. A legal enactment. Obs.”

And Funk and Wagnail’s New Standard Dictionary of the English Language gives the following meanings:

“1. The act of establishing, or the state or being established, in any sense of the word.

2. Anything established. (1) The body of persons composing a business organization, household, or any public or private institution, together with the premises they occupy; also, a place of business or a residence with its grounds and equipments. (2) An organized government or the force employed in administering it; especially, a military or naval organization, or the quota of officers and men belonging to it.

(3) An ecclesiastical system established by law; state church. (4) A settlement in life; particularly, a fixed alowance or income. (5) A legal enactment.”

I have set out the meanings of the word in detail for the purpose of showing how large their range is. It is clear that it is not an essential requirement of an establishment that there should be a fixed place of business or that there should be a building. There is nothing in the Regulations to prevent a taxpayer from having an establishment within their meaning without owning or renting a building. The evidence proves that in the years under review the respondent had a well established selling organization in Quebec and that it had been in operation ever since its incorporation. Under the circumstances, it can, in my opinion, be fairly said that in each of the said years the respondent had a permanent establishment in Quebec within the meaning of the Regulations and I so find.

While it is true that the respondent’s right to the deductions claimed by it depends on whether, in the years under review, it had a permanent establishment in Quebec within the meaning of the Regulations there is no presumption in favor of the contention advanced on behalf of the appellant that the expression “permanent establishment’’ implies a fixed place of business or something permanent in the nature of a building. It is a cardinal principle of income tax law that a person is not subject to tax unless he comes within the letter of the law, for it is the letter of the income tax law, and not its spirit, that governs. This basic principle has never been better stated than by Lord Cairns in Partington v. A.-G. (1869), L.R. 4 H.L. 100 at 122, where he said:

“I am not at all sure that, in a case of this kind — a fiscal ease—form is not amply sufficient; because, as I understand the principle of all fiscal legislation, it is this: If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to be. On the other hand, if the Crown seeking to recover the tax cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there is admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute.”

And it is not proper to assume any intention or governing purpose in the Income Tax Act, apart from its words. This was clearly stated by Lord Halsbury in Tennant v. Smith, [1892] A.C. 150 at page 154 in these terms :

“Ina taxing Act it is impossible, I believe, to assume any intention, any governing purpose in the Act, to do more than take such tax as the statute imposes. In various cases the principle of construction of a taxing Act has been referred to in various forms, but I believe they may be all reduced to this, that inasmuch as you have no right to assume that there is any governing object which a taxing Act is intended to attain other than that which it has expressed by making such and such objects the intended subject for taxation, you must see whether a tax is expressly imposed.

Cases, therefore, under the Taxing Acts always resolve themselves into a question whether or not the words of the Act have reached the alleged subject of taxation.’

The reason for the sections of the Act and the Regulations to which I have referred is that the Province of Quebec did not make a tax rental agreement with Canada covering the years under review but saw fit to impose an income tax of its own and Parliament provided for a deduction of a portion of the tax paid by a taxpayer to the province, subject to the condition specified, namely, that he should have had a permanent establishment in the province within the meaning of the Regulations in the years in which he paid tax to it on the business done therein in such years.

The regulations have themselves extended the ordinary meaning of the expression ‘‘ permanent establishment” to include such subjects as ‘‘branches’’, ‘‘offices’’ and “agencies”. There is no justification for restricting its meaning, as counsel for the appellant sought to do, or of expanding it beyond the extension made by section 411 of the Regulations.

The citations that I have made from the two eases of Partington v. A.-G. (supra) and Tennant v. Smith (supra) are specific illustrations of a well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language and that the subject is not to be taxed unless the language of the statute clearly imposes the obligation: vide Maxwell on Interpretation of Statutes, 10th Ed., at page 288.

The determination of the amount of income tax to which the respondent is subject for the years under review cannot be ascertained without consideration of the circumstances under which it may be entitled to deductions. Both the language of the Act imposing tax and the language of the Regulations setting out the conditions for the allowance of deductions must be considered. The proper approach to such considerations is to ‘‘look fairly at the language used.’’ This requirement was graphically stated by Rowlatt, J., in Cape Brandy Syndicate v. C.I.R., [1921] 1 K.B. 64, where he said, at page 71:

‘‘in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to read in, nothing is to be implied. One can only look fairly at the language used.’’

This statement was approved by Viscount Simon, L.C., speaking in the House of Lords, in Canadian Eagle Oil Co., Ltd. v. The King, [1946] A.C. 119 at page 140.

Looking fairly at the language used I find that in the years 1952, 1953, and 1954 the respondent had a ‘‘ permanent establish- ment” in Quebee within the meaning of the Regulations in that in such years it had a branch of its selling organization there and an agency for the sale of its products there within a fair meaning of the terms as used in Section 411(1) (a) of the Regulations and a permanent establishment there within a fair ordinary meaning of the expression.

There remain for consideration only the two questions referred to in Section 411(1) (b) of the Regulations. The first of these may be disposed of quickly. The facts are not sufficient to show that, in the years under review, the respondent carried on business through an employee or agent who had general authority to contract for it. While Mr. Tessier and the respondent’s district managers had certain authority to contract for it, the particulars of which have been set out, it was not an authority that could fairly be described as a general one within the meaning of Section 411(1) (b) of the Regulations.

There is, however, more to be said in respect of the second question, namely, whether, in the years under review, the respondent carried on business through an employee who had a stock of merchandise from which he regularly filled orders which he received. In my opinion, this question can fairly be answered in the affirmative. The evidence is clear that Mr. Tessier had a stock of merchandise of all the kinds of products sold by the respondent, owned mostly by him but partly by the respondent, from which he regularly filled certain orders which he received, namely, orders for small quantities and orders for rush delivery. The stock did not have to be owned by the respondent and it was not necessary that it should be large enough to enable Mr. Tessier to fill all the orders received by him.

For the reasons given I find that the respondent is entitled to the deductions claimed by it. It follows that the appeal herein must be dismissed and the assessments against which it appealed set aside. The respondent is also entitled to costs to be taxed in the usual way.

Appeal dismissed.