Galway v. M.N.R., 74 DTC 6247, [1974] CTC 313 (FCA)

Per curiam:—This is an application in writing under Rule 324 for a consent judgment in an appeal from a judgment of the Trial Division, the effect of which consent judgment would be that ‘the judgment of the Trial Division would be set aside and there would be a judgment of this Court whereby the appellant’s assessment under the Income Tax Act for the 1961 taxation year would be referred back to the respondent “to re-assess the appellant’s tax and interest in the total amount of $100,000 in accordance with the Amended Minutes of Settlement filed”.

As we have doubt as to whether the application should be granted, we are of opinion that counsel should be given an opportunity to speak thereto in open court. So that counsel will understand what our difficulties are, we shall set them out.

The relevant facts, as they appear from the Trial Division file, are as follows:

1. In 1962 the appellant filed his income tax return for the 1961 taxation year showing a tax payable for the year of $16,178, of which $4,950 had been paid by deduction at the source and $11,288.08 remained unpaid.

2. The appellant was assessed for tax as reported for the year and the balance was apparently paid.

3. In 1966 the appellant was reassessed for $149,559.66 for the 1961 taxation year, which amount was reached by adding to the amount as originally assessed $133,381.58 being an amount of additional tax arising from a “commission” of $200,500 that the appellant had not reported as income. The reassessment also fixed an amount of $32,344.89 as “interest charged on tax increase”.

4. The appellant appealed first to the Tax Review Board and then to the Trial Division. In the Trial Division there was no dispute as to amount; the sole question was whether the amount of $200,500 had been received in such circumstances as to require that it be included in computing the appellant’s income for the 1961 taxation year for the purposes of Part I of the Income Tax Act.

5. The appeal was dismissed by the Trial Division and an appeal to this Court was commenced.

The operative part of the proposed consent judgment of this Court would read as follows:

THIS COURT DOTH ORDER AND ADJUDGE that the Appellant’s appeal from an assessment in respect of his 1961 taxation year be and the same Is hereby allowed in part, without costs and the said assessment be referred back to the Respondent to re-assess the Appellant’s tax and interest in the total amount of $100,000.00 in accordance with the Amended Minutes of Settlement filed herein.

In the absence of special authority, there is doubt as to whether a judgment should be set aside on appeal unless the Court of Appeal has dealt with the matter on the merits. Compare Slaney v Kean, [1970] 1 All ER 434.

Authority to reverse or vary a judgment on consent is to be found in Rule 1212, as amended, which reads as follows:

RULE 1212. A respondent may consent to the reversal or variation of the judgment appealed against by giving to the appellant a notice stating that he consents to the reversal or variation of the judgment in the manner therein indicated, and thereupon the Court shall, upon the application of the appellant, pronounce judgment in accordance with the notice as a matter of course if the resultant judgment is one that would have been given on consent.

Where the judgment given under this rule reverses or varies the judgment of the Trial Division, the resultant judgment must be one that the Trial Division could have given on consent. This flows from the fact that what this Court can do, in such a case, when it allows an appeal from the Trial Division, is to give the judgment that the Trial Division should have given (see paragraph 52(b) of the Federal Court Act).

What the Trial Division could do on an appeal under the Income Tax Act, as it applied for the 1961 taxation year, where the result of the appeal was to vary the assessment, was to allow the appeal and either vary the assessment or refer the assessment back to the Minister for “reconsideration and re-assessment” (see subsection 100(5)). It would not seem that the Court can, by a reference of an assessment back for reassessment, require the Minister to do anything except what the statute requires him to do on a reassessment.

It seems obvious that the Minister cannot, on a reassessment, do anything other than assess in accordance with the authority conferred on him by the Income Tax Act. What the Minister was required to do was to assess

(a) the tax for the taxation year, and

(b) the interest and penalties, if any, payable.

Compare subsection 46(1) of the aforesaid Income Tax Act.

Our primary difficulty with the proposed consent judgment is that it proposes to fix one sum for tax and interest whereas, superficially at least, the Minister has authority to assess the tax for the taxation year and a separate authority to assess interest and penalties.

Our second difficulty is with reference to “interest”. The interest in question is presumably payable under subsection 54(1) of the aforesaid Income Tax Act, which reads as follows:

54. (1) Where the amount paid on account of tax payable by a taxpayer under this Part for a taxation year before the expiration of the time allowed for filing the return of the taxpayer’s income is less than the amount of tax payable for the year under this Part, the person liable to pay the tax shall pay interest on the difference between those two amounts from the expiration of the time for filing the return of income to the day of payment at the rate of 6% per annum.

We do not read this provision as lending itself to the assessment of a fixed amount for interest before the tax has all been paid. The liability is to pay interest at 6% per annum on unpaid tax (an amount that can be fixed) from a certain time “to the day of payment” and, in our view, it must be assessed accordingly.* [1] If the Minister cannot. assess interest at a fixed amount before payment of the tax, it would not seem that the Court can direct him to.

A further difficulty is that, assuming the assessment of interest can be made at a fixed amount for the period to the time of assessment (which the proposed assessment does not expressly do), the result of the proposed lump sum assessment would be that the amount assessed as tax would diminish with a delay in implementing the settlement and this, as it seems to us, cannot be right in principle.

Finally, we must express a serious doubt as to whether the settlement agreement is an appropriate one for implementation by assessment at all. There are three possibilities as to the reason for the settlement, viz:

(a) the parties are in agreement that the correct tax payable on the facts as proved at trial is a certain amount, in which event, a judgment to implement the agreement by reassessment would require the respondent to do something that falls within his assessment powers;

(b) the Minister in his wisdom is satisfied that there are compassionate grounds for remission, in which event, the Governor in Council can remit under section 17 of the Financial Administration Act, RSC 1970, c F-10;t [2] or

(c) the legal advisors of the Minister are satisfied that it is impractical to collect the amount payable under the present assessment and that more can be obtained under the compromise agreement than can be collected through legal process, in which event, the compromise is probably a proper subject matter for a compromise agreement made, in the exercise of the powers of the Attorney General of Canada to regulate and conduct litigation on behalf of the Crown, under the Department of Justice Act, RSC 1970, c J-2.

This is clearly not a case where there should be a reduction in the amount of the tax in dispute. It is a case where the whole $200,500 was taxable or it was not. In those circumstances, we have grave doubt as to whether the Minister is legally entitled to reassess for a part of the amount of tax in question. If he is not legally entitled to do so, the Court cannot require him to do so.

Reference might also be made to a question that occurs to us as to whether the judgment as consented to carries out the intention of the parties. We think that it is so worded as to fix the tax for 1961 and interest at $100,000. This would mean that the $16,178.08 already paid would have to be deducted therefrom to ascertain the amount payable. The minutes of settlement, however, contemplate payment of the whole amount.

The parties, or either of them, should be allowed, within 30 days from the date of these reasons, to apply for a date and place for oral argument of the application and, if no such application is made, the application for consent judgment should stand dismissed.

James Desmond Smith, Stephen George Smith, John Houston Milne and Canada Permanent Trust Company, Executors and Trustees of the Estate of Miriam Irene Smith, deceased, Appellants,

and