B.M. Enterprises Ltd. v. MNR, 90 DTC 1037, [1990] 1 CTC 2094 (TCC)

Kempo, T.C.J.:—This appeal is from a notice of assessment Number 574429 dated November 12, 1986 for the amount of $32,387.05. It reads:

This assessment is issued pursuant to the provisions of subsection 227(10) of the Income Tax Act, and is in respect of a liability imposed by subsection 224(4) of the Income Tax Act for non compliance with a Requirement to Pay served on B.M. Enterprises Ltd. December 17, 1984 in respect of Simonot Equities Ltd.

At the hearing, leave was granted to counsel for the appellant to file an amended notice of appeal to raise the question of the authority of the Minister to issue the subject assessment. Counsel for the respondent also received leave to then file an amended reply thereto. At the conclusion of the hearing it was directed that counsel’s submissions and arguments be made in writing to the Court. These have been received. I will deal with the case and the issues as delineated and argued by counsel for the parties. That being the situation, extrapolations from the written submitted material will be included in these reasons, where appropriate.

Facts

The underlying substantive facts of the case have been accurately stated in the submission by counsel for the respondent, thusly:

The appellant choose [sic] not to call any evidence. Mr. Barry McKenzie, who was acting as a supervisor when the requirement to pay was served on the appellant and who was at the time of issuing the assessment acting as a collection agent, testified on behalf of the respondent.

The facts in this case, as assumed by the Minister of National Revenue, were not challenged by the appellant.

The following is the summary of evidence introduced during the hearing and the facts relied on by the Minister to issue the assessment dated November 12, 1986:

The appellant was indebted to Simonot Equities Ltd., on December 17, 1984, for the amount of $213,677.48. The said amount was not secured, no interest was payable thereon and, there was no repayment date or schedule.

The financial statement of the appellant ending December 31, 1984, filed by the appellant with his tax return for the year 1984 and introduced by the respondent as Exhibit R-2, shows a balance of $215,634 owing by the appellant to an affiliate company. Note 5 in the "notes to the financial statements" shows that the debt has no set repayment date. No interest date is payable on this debt and no security has been given.

Mr. McKenzie testified that according to the audit that he performed, Simonot Equities Ltd. was the company referred to in the financial statements of the appellant filed as Exhibit R-2, and that both companies were controlled by the same shareholder, Mr. Marcel Simonot.

At all relevant time, Simonot Equities Ltd. (the tax debtor) was liable to make payment under the Income Tax Act in an amount not less than $32,387.07.

Mr. McKenzie testified that on December 17, 1984, the appellant was served with a requirement to pay, dated December 14, 1984, issued pursuant to the provisions of subsection 224(1) of the Income Tax Act in the amount of $32,387.05 (see Exhibit R-1).

It was also not disputed that the amount of $2,800 and the amount of $37,000 was paid or credited to Simonot Equities Ltd. for the purpose of reducing the debt due to Simonot Equities Ltd. by the appellant.

Mr. McKenzie has also audited the books and records of Simonot Equities Ltd.. He testified that, according to financial statements ending April 30, 1985, filed with the tax return of Simonot Equities Ltd. and introduced in evidence as Exhibit R-3, "the due form [sic] affiliate (note 2) in the amount of $195,618”, appearing in the balance sheet of the Exhibit R-3, refers to the appellant. He also testified that the amount of $39,800 representing repayments by B.M. Enterprises Ltd. in January and April 1985 was credited to Simonot Equities Ltd. and reduced the liability of the appellant to Simonot Equities Ltd. to $195,618, as shown by the financial statements of Simonot Equities Ltd. filed as Exhibit R-3.

He also testified that the note 2 appearing in the "notes to financial statements" indicates that the $195,618 advanced to a company one hundred percent (100%) owned by the same shareholder has no set repayment terms, no interest is receivable and no security is pledged.

The appellant has failed to comply with the requirement to pay issued pursuant to subsection 224(1) of the Income Tax Act, accordingly, he became liable under subsection 224(4) of the Income Tax Act to pay to Her Majesty an amount equal to the amount that he was required to pay under subsection 224(1).

Following his audit, Mr. McKenzie made a recommendation to the effect that a reassessment should be issued.

On November 12, 1986, the respondent issued an assessment in the amount of $32,387.05 pursuant to the provisions of subsection 227(10) of the Income Tax Act in respect of a liability imposed by subsection 224(4) of the Income Tax Act for failure to comply with a requirement to pay served on the appellant on December 17, 1984, in respect of Simonot Equities Ltd. (see Exhibit R-4).

Submissions

The appellant's first submission was the "[u]p to the moment of the respondent calling evidence at trial it was assumed by the appellant that the Minister or a person authorized by the Income Tax Act or the Regulations thereunder to exercise the powers and perform the duties of the Minister had issued the assessment, the subject of these proceedings."

Counsel for the respondent responded:

Regarding the first issue raised by the appellant, it is respectfully submitted that the testimony of Mr. Barry McKenzie was not to the effect that he issued the assessment.

As shown in the notice of assessment filed as Exhibit R-4, the notice of assessment was issued according to subsection 227(10) of the Income Tax Act. Mr. Barry James McKenzie testified that he was a supervisor at the time the requirement to pay was issued. Furthermore, it was never contented [sic] by the respondent that Mr. Barry McKenzie was the one who issued the assessment.

The Evidence

The evidence of Mr. McKenzie was crucial. It appears thusly in the proceedings.

EXAMINATION-IN-CHIEF BY MR. BEDIRIAN:

Q. I understand that you were the collection agent that was responsible issuing the assessment in this matter?

A. Yes, that's correct.

[T.6, II. 8-12]

CROSS-EXAMINATION BY MR. SANDERSON:

Q. Mr. McKenzie, I’m presuming that you would have carried out an audit from the standpoint of the Collection Department of Revenue Canada as distinct from the normal Audit Department of the Department?

A. That is correct.

A. The type of audit that I performed was the type undertaken to determine whether or not there had been non-compliance with the Requirement to Pay that. It was undertaken on that specific purpose, yes.

[T.18, II. 3-8, 22-25]

Q. Well, we get to this. Was the ultimate assessment issued by you?

A. Yes, it was.

Q. That's one of the functions of your office in collections?

A. Yes.

[T.22, II. 18-23]

Q. All right, well you issued the assessment? That was you, Barry McKenzie issued it?

A. I issued it after proper approvals had been obtained, yes.

Q. I appreciate that you would go through all the normal steps. I’m not challenging at all, Mr. McKenzie, on that basis.

But after, you would issue the assessment solely on the basis that it was your understanding of Simonot, or B.M. Enterprises Limited owed a sum of money at the time of the service of the Requirement to Pay to Simonot Equities?

A. That plus the fact that they had not remitted the funds to us.

[T.25 11.2-15]

Accordingly, the evidence in the case does not support the respondent counsel's submission.

Analysis

In my view the following postulations by counsel for the appellant are preferred and are to be adopted:

It is to be recognized that under various sections of the Income Tax Act Parliament has given the Minister of National Revenue authority to exercise various powers and has given the obligation to perform certain duties. In recognition that the Minister could not hope to personally exercise all his powers or perform all his duties Parliament enacted Section 221 and provided by subsection (1)(f) thereof as follows:

221(1) The Governor in Council may make regulations (f) authorizing a designated

officers [sic] or class of officers to exercise powers or perform duties of the Minister under this Act.

The assessment, the subject of these proceedings, was issued or created by one Barry James McKenzue [sic] who, in giving testimony before , described himself, at the time of issuing the Assessment, as a "Supervisor within the collection branch” of Revenue Canada. Until this testimony was advanced it was unknown to the appellant who had issued the Assessment. The Assessment was dated and marked November 12, 1986.

The Assessment stated it was "issued pursuant to the provisions of subsection 227(10) of the Income Tax Act, and is in respect of a liability imposed by subsection 224(4) of the Income Tax Act. . ."

The provisions of section 227(10) of the Income Tax Act as same was as of November 12, 1986 provided :

(10) Assessment—The Minister may assess

(a) any person for any amount payable by that person under subsection (8) or 224(4) or (4.1) or section 227.1 or 235, and

(b) any person resident in Canada for any amount payable by that person under Part XIII,

and where he sends a notice of assessment to that person, Divisions I and J of Part I are applicable with such modifications as circumstances require.

Under the Income Tax Regulations, as amended to December 24, 1986, it is provided under Part IX, Delegation Of The Power and Duties Of The Minister, by section 900 a list of the officials to whom authority is granted by Regulations made pursuant to section 221(1) of the Income Tax Act, to exercise the powers and perform the duties of the Minister under a long list of section numbers of the Income Tax Act. It will not be found in said list that any authority was possessed by a "Supervisor within the collection branch” to exercise any of the powers or perform any of the duties of the Minister and, in fact, no delegation of authority under 227(10) was given to any official. The Assessment at bar was not therefor [sic] an assessment by the Minister and thus has no status. In fact a "Supervisor with the collection department" has no authority granted by Order in Council to do anything in the nature of exercising the powers or performing the duties of the Minister.

There is nothing in the evidence, or on the record, to support a finding that Mr. McKenzie's issuance of the subject assessment had been predicated upon him having had any express or implied authority to so act. As the subject assessment arises from a statutory remedy which is extraordinary in nature, the subsection 227(10) provision giving rise to it is to be strictly construed. It calls for concomitant responsibility upon the Minister or his lawfully authorized officials beyond that which is merely administrative in nature. The responsibility to be undertaken concerns matters of mixed fact and law encompassing the question of a purported liability. This function is not merely collateral to whether an assessment action should be or not be taken; it is the essence of the matter. A discretionary power given to the Minister, to assess or not to assess, in general, is to be exercised only by the authority to which it has been committed by statute.

Accordingly, I have serious reservations that any implied delegation rule could or would be applicable; see for example Robert Austin Doyle v. M.N.R., [1989] 2 C.T.C. 270; 89 D.T.C. 5483 (F.C.T.D). I have even greater doubts that a supervisor of collections, or any individual holding Mr. McKenzie's position, could or would be included in the Regulation 900 designations. The nomenclature employed therein is indicative of the requisite function and status, with its commensurate responsibility.

Conclusion

For the reasons given, the appeal is allowed and the subject assessment is vacated. As this is sufficient to dispose of the appeal, the remaining alternative positions of the parties need not be considered and determined.

The appellant will have its costs on a party-to-party basis.

Appeal allowed.