Cattanach, J:—These are seven appeals from assessments to income tax by the Minister with respect to the plaintiff, Southside Car Market Ltd, (hereinafter sometimes referred to as “Car Market” for purposes of convenience) for its 1976 and 1977 taxation years, with respect to the plaintiff Coast Finance Ltd, (hereinafter sometimes referred to for convenience as “Coast Finance”) for its 1976, 1977 and 1978 taxation years with respect to Southside Datsun Ltd, (for convenience sometimes referred to as “Datsun”) for its 1977 and 1978 taxation years.
By the seven assessments from which the plaintiffs appeal, the Minister assessed the plaintiffs on the basis that Car Market was associated with Coast Finance and Datsun during its 1976 and 1977 taxation years, that Coast Finance was associated with Car Market and Datsun throughout its 1976, 1977 and 1978 taxation years and Datsun was associated with Car Market throughout Datsun’s 1977 and 1978 taxation years, within the meaning of paragraph 256(1)(b) and subsection 256(2) of the Income Tax Act.
Each of the plaintiffs is a Canadian controlled private corporation within the meaning of the definition of that term in paragraph 125(6)(a) of the Income Tax Act.
As such by virtue of section 125 of the Act each plaintiff would be entitled to pay a tax at a lesser rate on a business limit for a taxation year and a total business limit “unless the corporation is associated in the year within one or more other Canadian controlled private corporations in which case, except as otherwise provided in this section, its business limit for the year is nil and its total business limit for the year is nil”.
There is no dispute between the parties as to the income of the respective plaintiffs. The dispute between the parties is whether Datsun is associated with Car Market and Coast Finance because it is controlled by the same group of persons who control Car Market and Coast Finance.
The plaintiffs readily concede that Car Market and Coast Finance are controlled by the same person but do not accept that Datsun is so controlled but rather that Datsun is controlled by a group and is therefore not associated with the other two plaintiffs.
I need not concern myself with the quantum of the tax which will be exigible in the event that the plaintiffs are associated or are not associated.
If the three plaintiffs are associated (it being conceded that two are but not the three), then the tax payable will be in larger amounts and at higher rates than if Datsun were not associated each with the other two. In the first instance the advantage would be to the Treasury in that the maximum tax would be exacted whereas in the latter case the advantage would be to the plaintiffs in that a lesser tax would be payable due to the statutory concessions made to Canadian-controlled private corporations if by virtue of not being associated they are not excluded from those concessions.
By order dated February 12, 1982, pursuant to application therefor, the seven appeals were to be heard on common evidence.
Prior to trial the parties, by their respective solicitors, agreed upon the following statement of facts:
Agreed Statement of Facts
The parties to this action, by their respective solicitors, admit the facts specified herein provided that:
(a) such admissions are made for the purposes of the actions filed in this Court by Southside Datsun Ltd, Coast Finance Ltd, and Southside Car Market Ltd (hereinafter colectively called the “Companies”) under action numbers T-877-81, T-878-81, T-879-81, T-880-81, T-881-81, T-882-81 and T-883-81 (hereinafter called the “Actions”) only and may not be used against any party to the Actions on any other occasion; and
(b) any such party may produce further evidence not inconsistent with this agreement at the hearing of the Actions.
1. Each of the Companies is a company incorporated pursuant to the Company Act of British Columbia.
2. At all times material to the Actions each of the Companies was a Canadian-controlled private corporation as defined in subsection 125(6) of the Income Tax Act.
3. In each taxation year referred to in the Actions, each of the Companies claimed the small business deduction pursuant to subsection 125(1) of the Income Tax Act with respect to a portion of its income for that year. The amount of deduction so claimed was calculated on the basis that, although Coast Finance Ltd and Southside Car Market Ltd were associated with each other, neither of them were associated with Southside Datsun Ltd at any time within the the meaning of section 256 of the Income Tax Act.
4. The Minister of National Revenue reassessed the Companies to tax on income for each of the said years on the basis that the amount of the small business deduction available to them was less than the amount claimed.
5. In so reassessing the Companies, the Minister of National Revenue assumed that Southside Datsun Ltd was associated with Southside Car Market Ltd because both of those corporations were controlled by the same group of persons namely John Arthur Warmington and Frank Joseph Affettuso. The Minister further assumed that Southside Datsun Ltd and Coast Finance Ltd were associated pursuant to subsection 256(2) of the Income Tax Act.
6. The Companies objected to the said reassessments by serving Notice of Objection on the Minister of National Revenue on August 6, 1980.
7. The Minister of National Revenue confirmed the said reassessments by notice in writing dated December 24, 1980.
8. At all times material to the Actions, the shares described in the following table, below the name Southside Datsun Ltd or Southside Car Market Ltd as the case may be, were the only voting shares in the capital stock of that company which were issued and outstanding and the individual named opposite the description of those shares was both the beneficial owner of and recorded in the share register of that company as the registered owner of those shares:
|Shareholder||Southside Datsun Ltd||Southside Car Market Ltd|
|John A Warmington||100 Class A Common (50%)||224 Common (56%)|
|Irma L Warmington||80 Common (20%)|
|Frank J Affettuso||100 Class A Common (50%)||96 Common (24%)|
|200 Class A Common||400 Common|
9. At all times material to the Actions, the said shares were the only shares of Southside Datsun Ltd or Southside Car Market Ltd, as the case may be, which conferred upon the holder the right to vote in the election of the directors of that company and each such share entitled the holder thereof to cast one vote in such an election.
10. At all times material to the Actions, Irma L Warmington was the wife of John A Warmington and neither of them were related to Frank J Affettuso by blood, marriage or adoption within the meaning of section 251 of the Income Tax Act.
11. None of the said shareholders were at any time material to the Actions subject to any contract, trust or arrangement which in any way restricted his or her right to vote the said shares in such manner as he or she saw fit.
12. At all times material to the Actions the Memorandum of Association and Articles of Association of Southside Datsun Ltd were in the forms annexed hereto as Schedules A and B respectively and the Memorandum of Association and Articles of Association of Southside Car Market Ltd were in the forms annexed hereto as Schedules C and D respectively.
The appendices, being the Memorandum of Agreement, Articles of Association and Certificate of Incorporation, are not reproduced.
In accordance with paragraph (b) of the mutual admission of facts for the purpose of these appeals, Mr Warmington gave oral testimony.
Mr Warmington and Mr Phillips were associated together in Car Market as partners. In 1956 the Car Market entity was incorporated pursuant to the laws of the Province of British Columbia and went through name changes culminating in Southside Car Market Ltd. The issued shares of the capital stock were held as follows:
|Mr Warmington||120 shares|
|Mr Phillips||120 shares|
|Mrs Warmington||80 shares|
|Mrs Phillips||80 shares|
Upon Mr Phillips’ death Mr Warmington purchased the shares held by Mr and Mrs Phillips so that the shareholding was then:
|Mr Warmington||320 shares|
|Mrs Warmington||80 shares|
Mr Warmington was the president and Mrs Warmington was the secretary of Car Market.
In 1958 Mr Warmington sold 96 of his shares to Mr Affettuso. He did so because Mr Affettuso had been with him since the inception of Car Market as a salesman and had become the sales manager. Because of his dedication and faithful service to the company and Mr Warmington’s trust in him, he felt that such attributes warranted participation in the ownership of the business. Therefore he was afforded the opportunity to purchase 96 shares, which he exercised and thus acquired 24% of the issued share capital.
The shareholdings then became:
|Mr Warmington||224 shares|
|Mr Affettuso||96 shares|
|Mrs Warmington||80 shares|
Mr Warmington then considered it expedient to sell shares to two other employees, so the shareholding then became:
|Mr Warmington||157 shares|
|Mr Affettuso||96 shares|
|Mrs Warmington||80 shares|
|Ron Errett||40 shares|
|Hans Gruhn||27 shares|
This persisted for three years when Messrs Errett and Gruhn expressed the desire for a greater shareholding interest to the extent that Mr Warmington would lose his individual control.
He therefore bought back the shares that he had sold to Errett and Gruhn, who then left the employ of Car Market and the shareholding reverted to Mr Warmington 224, Mr Affettuso 96, and Mrs Warmington 80. Mr Affettuso did not become a director until 1968, ten years after his acquisition of 96 shares in 1958.
In 1968 he became the secretary in place of Mrs Warmington who was pleased to be relieved of that nominal responsibility and it was more convenient to Mr Warmington to have Mr Affettuso present at the business premises in readiness to sign any documents which required the signature by one or two of the corporate officers.
Mr Affettuso did not attend shareholders’ meetings nor vote his shares thereat. Shareholders’ meetings, if that is what they were, were held by Mr Warmington attending at the solicitor’s office and signing the appropriate minutes prepared. Thus the shareholding in Car Market at the material times became and remained as set forth in paragraph 8 of the Agreed Statement of Facts.
Coast Finance is a company incorporated pursuant to the laws of the Province of British Columbia and carried on the business of automobile financing.
In 1951 Mr Warmington and Mr Phillips acquired the whole of the issued shares in the capital stock of Coast Finance in equal proportions. On Mr Phillips’ death Mr Warmington acquired Mr Phillips’ shares so that he became the sole shareholder of Coast Finance.
It is expedient at this point to reproduce paragraph 256(1) of the Income Tax Act. It reads:
256. (1) For the purposes of this Act one corporation is associated with another in a taxation year if at any time in the year. . .
(b) both of the corporations were controlled by the same person or group of persons.
Since Mr Warmington, by reason of his holding of the majority of the voting shares in Car Market and all the shares in Coast Finance, is the same person who controls both those operations from which it follows that Car Market and Coast Finance are associated in the taxation years under review and that is readily conceded.
Now enters Datsun.
Mr Warmington was offered a franchise by Nissan, the Japanese manufacturer of the Datsun automobile.
It was a condition exacted by Nissan that a new and original corporation shall be incorporated to exercise the franchise to be granted.
Accordingly, in the spring of 1972 Southside Datsun Ltd was incorporated under the laws of the Province of British Columbia in which Mr Warmington and Mr Affettuso each held 50% of the issued capital stock. The franchise was granted to this corporation by Nissan. The Articles of Association deliberately make no provision for a casting vote. Therefore, if Mr Warmington and Mr Affettuso were at variance on a particular issue, that could result ina deadlock which, if it persisted, could only be resolved by a winding up of the corporation.
Thus, Datsun is controlled by a group of persons consisting of Warmington and Affettuso. It cannot be otherwise. They are the only shareholders. They each have the same number of shares. To accomplish any corporate act they must vote in concert.
Therein lies the issue.
Datsun is controlled by a group of persons, Warmington and Affettuso.
Car Market is controlled by Warmington.
Coast Finance is controlled by Warmington.
Thus, as previously stated, Car Market and Coast Finance are associated by virtue of their being controlled by the same person, Warmington.
But the question to be determined is whether Datsun can be said to be associated with Car Market by reason of the same group of persons, that is, Warmington and Affettuso being the group of persons that controls Datsun, can also be said to be the same group of persons that controls Car Market and this despite the fact that Warmington alone holds the majority of shares in Car Market to exercise control over Car Market.
The contention on behalf of the Minister, put conversely, is that a group of persons may be considered to control a corporation even though one member of the group may own sufficient shares to control the corporation.
If this be so, then by virtue of subsection 256(2) of the Act, Car Market, Coast Finance and Datsun would also be associated one with the other no matter in what combination they are placed.
The contention on behalf of the plaintiffs is the contrary. A group of persons cannot be said to control a corporation when, in fact, it is controlled by a single person.
Prior hereto I have categorically stated that Datsun is “controlled” by a group of persons consisting of Warmington and Affettuso and I have said that Car Market and Coast Finance are controlled by Warmington. In so Stating I was applying the meaning of the word “controlled” used in subsection 39(4) of the Income Tax Act ascribed by Jackett, P, as he then was, in Buckerfield’s Ltd et al v MNR,  1 Ex C R 299;  CTC 504; 64 DTC 5301.
Paragraph 39(4)(b) was in the identical language used in paragraph 256(1 )(b), the presently applicable statutory provision, except in paragraph 39(4)(b) the initial words of the subsection were: “For the purposes of this section”, and in paragraph 256(1 )(b) the initial words of the subsection are: “For the purposes of this Act”. That change was dictated by the context of the rearrangement of the provisions in the statute.
Jackett, CJ, had this to say at 302 [507, 5303]:
Many approaches might conceivably be adopted in applying the word “control” in a statute such as the Income Tax Act to a corporation. It might, for example, refer to control by “management”, where management and the Board of Directors are separate, or it might refer to control by the Board of Directors. The kind of control exercised by management officials of the Board of Directors is, however, clearly not intended by section 39 when it contemplates control of one corporation by another as well as control of a corporation by individuals (see subsection (6) of section 39). The word “control” might conceivably refer to de facto control by one or more shareholders whether or not they hold a majority of shares. I am of the view, however, that in section 39 of the Income Tax Act, the word “controlled” contemplates the right of control that rests in ownership of such a number of shares as carries with it the right to a majority of the votes in the election of the Board of Directors. See British American Tobacco Co v IRC,  1 All ER 13, where Viscount Simon, LC, at page 15, says:
“The owners of the majority of the voting power in a company are the persons who are in effective control of its affairs and fortunes.”
See also Minister of National Revenue v Wrights’ Canadian Ropes, Ltd,  AC 109 [2 DTC 927] per Lord Greene, MR, at page 118, where it was held that the mere fact that one corporation had less than 50 per cent of the shares of another was “conclusive” that the one corporation was not “controlled” by the other within section 6 of the Income Tax Act.
This same passage was quoted with approval by Hall, J speaking for the Supreme Court of Canada in MNR v Dworkin Furs (Pembroke) Ltd, et al,  S.C.R. 223;  CTC 50; 67 DTC 5035, at 227 [52, 5036]:
The word controlled as used in this subsection (subsection 39(4) which he had reproduced immediately above — my insertion) was held by Jackett, P to mean de jure control and not de facto control and with this I agree.
I repeat for emphasis the de jure right of control as expressed by Jackett, CJ above, the word “controlled” contemplates the right of control that rests in ownership of such number of shares as carries with it the right to a majority of the votes in the election of the Board of Directors. It is for this reason that I have said that Mr Warmington controlled Southside Car Market, Ltd and Coast Finance Ltd and he did so as a person.
For the same reason I have said that Warmington and Affettuso as a group of persons controlled Southside Datsun Ltd.
With respect to Car Market, however, Mr Warmington by virtue of his ownership of the majority of the shares in that corporation had the right alone in his personal capacity as the owner of the shares to exercise control within the definition of control as expressed by Jackett, CJ. Mr Affettuso held no interest in that right nor could he exercise any influence whatsoever over the de jure right of control vested in Mr Warmington. Mr Warmington had the exclusive and unfettered right to cast the majority of votes in the election of the Board of Directors.
Counsel for the Minister referred me to the decision of Kerr, J in S Madill Ltd v MNR,  CTC 47; 72 DTC 6027.
A publicly owned manufacturing company was controlled, directly and indirectly, by two Madill brothers. A separate private sales company was incorporated to conduct the sales of the manufacturing company. As an incentive to Wilfert, the sales manager, 450 shares of the sales company were issued to Wilfert and the manufacturing company held 450 shares. The remaining 100 of the 1000 shares in the capital stock were issued to Smith to prevent a deadlock should such arise between Wilfert and the manufacturing company each holding the same number of shares.
Thus, the sales company was controlled by the manufacturing company and Wilfert, by the manufacturing company and Smith, by Wilfert and Smith or by the manufacturing company, Wilfert and Smith.
The Madill brothers were in the position to control the manufacturing company as a group of persons. Wilfert and Smith each held a very nominal share interest in the manufacturing company.
The Minister assessed the manufacturing and the sales companies on the basis that they were associated each being controlled by the same group of persons, namely, the Madill Brothers, Wilfert and Smith.
The sales company appealed from its assessment to income tax. Kerr, J dismissed the appeals. He held that there was no evidence that the four individuals acted in concert in either company and acknowledged that the Madill brothers were in a position to control the manufacturing company. However, he held that this did not constitute an impediment to the existence of a larger group of persons including Wilfert and Smith to coincide with the group of the Madill brothers and Wilfert and Smith who held all the shares in the sales company and thus controlled it, although a lesser group could also exercise control of the sales company so that the group of persons in the manufacturing company were selected by the Minister to coincide with the four persons who constituted all the shareholdings in the sales company.
Superimposed upon this was the statement made by Mr Justice Kerr that over and above their respective shareholdings, the group of four, Norman Madill, Charles Madill, Wilfert and Smith “have a community of interest and concern in the operation of” the sales company and the manufacturing company, and “that they can aptly be described as a ‘group of persons’ within the meaning of section 39(4)(b) of the Income Tax Act...”.
This “community of interest and concern” was an evidentiary fact found by Kerr, J to exist and, as he stated, was a consideration he took into ac- count in his determination as to whether any group of persons exercises control.
Mr Justice Kerr stated that because of the community of interest and concern in the group of four, and that by virtue of the ownership of voting shares in each company, they, as a group of four (although lesser and therefore different groups could do the same) were in a position to control both companies from which it followed that the companies were associated by reason of being controlled by the same group of persons.
In Floor & Wall Covering Distributors Limited and Vina-Rug (Canada) Limited v MNR,  1 Ex CR 390;  CTC 566; 66 DTC 5373, Gibson, J said that “control” in subsection 39(4):
... means the right to control by ownership of voting shares, not de facto control. What is done at any time with such right to control is therefore not necessarily material.
Mr Justice Gibson accepted that whether or not a particular group of persons controls a particular company as a question of fact as is whether that same particular group controls a different company is also a question of fact.
He concluded that the assumption upon which the Minister found the two appellant companies to be associated in that they were each controlled by the same group of persons had not been established to be wrong.
On appeal sub nom Vina-Rug (Canada) Limited v MNR,  S.C.R. 193;  CTC 1; 68 DTC 5021, the appeal was dismissed.
Abbott, J delivered the judgment of the Supreme Court of Canada.
After first quoting the remarks of Hall, J, concerning the concept of control in the Dworkin Furs case (supra), in which the remarks of Jackett, CJ in the Buckerfield’s case (supra) were repeated which have likewise been reproduced herein, Mr Justice Abbott then said at 197 [4, 5023]:
“Applying the principles, once it is established that a group of shareholders owns a majority of the voting shares of a company, and the same group a majority of the voting shares of a second company, that fact is sufficient, in my opinion, to constitute the two companies associated within the provisions of s 39 of the Income Tax Act. Moreover, in determining de jure control more than one group of persons can be aptly described as a “group of persons” within the meaning of s 39(4)(b). In my view, it is immaterial whether or not other combinations of shareholders may own a majority of voting shares in either company, provided each combination is in a position to control at least a majority of votes to be cast at a general meeting of shareholders.”
The principle to which Mr Justice Abbott referred was that of de jure control but it is abundantly clear from the quoted passage that if there is a coincident group of shareholders in each of two companies and that each group of shareholders owns the majority of shares to elect the Board of Directors then the companies are associated under paragraph 39(4)(b) and likewise paragraph 256(1 )(b) and the size of that majority is immaterial.
Assuming that A and B own 52% of the voting shares in X company and C holds but one share in X company and in Y company, A, B and C each hold 17% of the voting shares or a 51% majority, then there is no impediment to the Minister adding C to A and B in X company to make the group A, B and C, which is the group of persons controlling Y company and having done that the same group of persons, A, B and C, in X company coincides with that group which controls Y company so that the result is X and Y are associated and are not entitled to the advantage of the lower tax rate provided in the statute.
Reverting to paragraph 256(1)(b) quoted above, two separate and distinct circumstances are contemplated thereby. One corporation is associated with another if both corporations are controlled by
(1) the same person, or
(2) the same group of persons.
Further, it seems to me, that subsection 256(1) purports to provide for all the circumstances by virtue of which one corporation is associated with another and to be associated the corporation must fall precisely within one of the circumstances provided therein.
Accordingly, since the language of paragraph 256(1 )(b) sets forth two distinct circumstances when two corporations are associated, namely, when controlled by (1) the same person and (2) by the same group of persons, the two sets of circumstances are mutually exclusive. That, in my view, is the precise meaning of the language of paragraph 256(1 )(b). The word “or” in the phrases of the paragraph reading “by the same person or group of persons” is used in its disjunctive sense. It cannot be otherwise in the context.
The conclusion that the two phrases are mutually exclusive by their plain meaning is confirmed by the cardinal rules in the interpretation of statutes, if resort need be taken thereto, expressed in the maxim expressio unius est exclusio alterius.
Notwithstanding the high and deserved approval accorded to Mr Justice Jackett’s definition of control in the Buckerfield’s case for the purposes of subsection 39(4) of the Income Tax Act then in force, and with equal application to paragraph 256(1 )(b) presently in force, which is that de jure control that rests in the ownership of such a number of shares as carries with it the right to a majority of the votes in the election of the Board of Directors, the next following paragraph in his reasons for judgment has not achieved the same prominence.
That this is so is that the cases that have come to trial before judges in courts of co-ordinate jurisdiction with me or in courts by the decisions of which I am bound have been concerned with control by the same groups of persons, and not cases where control in one company is exercised by a person and in another company by a group of persons in which the single person who controls the other company is a member of the group. That is the fact in the present appeal.
After the frequently quoted definition of control by Jackett, CJ, in Buckerfield’s, he said in the very next paragraph:
Where, in the application of section 39(4) a single person does not own sufficient shares to have control in the sense to which I have just referred, it becomes a question of fact as to whether any “group of persons” does own such a number of shares.
In my view it is implicit from the language quoted that if a single person owns a sufficient number of shares in a company, there is no necessity to consider the question of fact as to what group of persons owns such a number of shares. Thus, if a single person owns sufficient shares to exercise control, resort to whether a group of persons holds control is precluded. The condition precedent to the consideration of control in a group is that no single person has control.
That, in my view, is the precise meaning of paragraph 256(1 )(b).
In the event, however, that the language of paragraph 256(1 )(b) is susceptible of the interpretation that a single person having control of a com- pany may be included in a group of persons having control of the company for the purposes of the paragraph, which I do not think to be the case, then if a provision in a penal or taxing statute is capable of two alternative meanings the courts will defer to that meaning more favourable to the taxpayer.
My attention has been directed to interpretation bulletins issued by the Department of National Revenue which express divergent views one with the other.
Paragraph 18 of Bulletin IT-64, dated September 8, 1972, reads:
18. A “group of persons” cannot be said to control a corporation when, in fact, it is controlled by a single person.
This statement was repeated in a revision dated December 22, 1975. However, in the Index to Interpretation Bulletins, published on September 30, 1976, paragraph 18 was repealed and replaced by the following:
18. A “group of persons” may be considered to control a corporation even though one member of the group may own sufficient voting shares to be in a position to control it.
An interpretation bulletin is nothing more than the Departmental interpretation of a provision in the statute for Departmental purposes. Such an interpretation is not law until so interpreted by a court of competent jurisdiction. It is not the statute. It is merely a direction to the employees of the Department charged with that responsibility as to the Departmental policy in assessing taxpayers.
These bulletins were not put before me as authoritative interpretations of paragraph 256(1)(b) but merely to explain the dearth of authorities upon the issue before me, accounted for by the fact that the assessing policy of the Department was dictated by the earlier bulletin which was replaced by the later bulletin dated December 22, 1975.
There is no judicial decision cited to me nor have I been able to find any such decision binding upon me, which would justify such a change in assessing policy from the former to the latter.
The Madill case was decided on January 10, 1972. The Vina-Rug case was decided by the Supreme Court on January 28, 1968, both long before the change in policy.
Neither case is authority for the proposition that a group of persons may include as a member of a group who himself owns sufficient shares to be in a position to control the company.
For the reasons I have expressed, it is my view that the former interpretation is the correct interpretation of paragraph 256(1 )(b), that is that a group of persons cannot be said to control a corporation when, in fact, it is controlled by a single person.
Accordingly, the seven appeals are allowed and the assessments are referred back to the Minister for reassessment in accordance with these reasons. The plaintiffs shall be entitled to their taxable costs.