Johnson & Johnson Inc. v. The Queen, 92 DTC 6373, [1992] 2 CTC 86 (FCTD)

Cullen, J.:—This is an appeal from a reassessment of tax, dated March 27, 1986, in respect of the plaintiff's 1982 taxation year. By notice of reassessment the Minister of National Revenue (the "Minister") included the amount of $6,242,360.75, representing the entire amount of refund of sales tax the plaintiff received, in the computation of the plaintiff's income for its 1982 taxation year.

Facts

The parties to this action filed an agreed statement of facts, which reads as follows:

1. The plaintiff is a Canadian corporation which manufactures and distributes health care products, including baby care, first aid, hospital, industrial and feminine hygiene and sanitary products.

2. In computing its income for the taxation years ending respectively on December 31, 1977, December 31, 1978, December 31, 1979, December 28, 1980 and January 2, 1982, the plaintiff deducted federal sales tax which it paid in respect of sanitary napkins.

3. The plaintiff applied to the Minister of National Revenue (the"Minister") for refund of the federal sales tax which it had paid in respect of the sanitary napkins and appealed to the Tariff Board, in view of the Minister’s position that such federal sales tax was properly payable i in respect thereof, for a determination that sanitary napkins were exempt from the federal sales tax as articles of clothing. Such claims had been made in respect of the period April 1, 1975 up to and including August, 1981.

4. The plaintiff was successful in its appeal to the Tariff Board. The judgment of the Tariff Board, dated October 15, 1980, is attached hereto as Appendix 1.

5. The Minister appealed from the judgment of the Tariff Board to the Federal Court of Appeal, which dismissed the Minister's appeal by Judgment dated September 21, 1981. A copy of that Judgment is attached hereto as Appendix 2. The minister decided not to proceed further with any appeal, as can be seen from the letter dated November 25, 1981, attached hereto as Appendix 3.

6. Neither the judgment of the Tariff Board nor that of the Federal Court of Appeal dealt with the liability of the plaintiff for federal sales taxes but merely with the issue of whether sanitary napkins were subject to the said tax. In that respect, both judgments were in rem determinations.

7. The plaintiff's 1982 taxation year ended on January 3, 1982. Its 1983 taxation year ended on January 2, 1983.

8. The plaintiff's refund claims relating to the federal sales taxes paid in respect of sanitary napkins were audited during the latter part of the calendar year 1981.

9. The audit of the said refund claims was performed by Gilles Maheu ("Ma- heu"). Maheu was assigned to the plaintiff's refund claim file on or about December 1, 1981. At all relevant times for purposes of the present Action, Maheu was a senior auditor in the Customs and Excise Division of the Department of National Revenue (the"Department"). The responsible minister of the Crown in respect of the administration and enforcement of the Excise Tax Act is the Minister of National Revenue.

10. As senior auditor in the Department, Maheu reported to a Supervisor. Maheu's supervisor at all relevant times for purposes of this Action was N.A. Veillette (" Veillette").

11. The chain of command within the Department was that Veillette reported to the Department's District Manager (C. Lamouteux), who in turn, reported to the Regional Chief—Audit (A. Rizk), who reported to the Regional Director (P.V. Bartolini), who reported to the Assistant Deputy Minister (L.R. Huneault).

12. Maheu completed his audit of the plaintiff's refund claims on or about December 16, 1981. He forwarded his report and recommendation to his Supervisor (Veillette), who reviewed it and indicated his approval of the report and recommendation by initialling the report on or about December 23, 1981. A copy of the refund claims evidencing the procedure and the working papers of Maheu are attached hereto as Appendix 4. The amount in issue in this Action consists of the aggregate of two refund claims (bearing, respectively Departmental identification numbers 008034 and 009214) in the amounts ultimately approved, of $4,525,689.61 and $1,716,671.14, making a total of $6,242,360.75.

13. By letter dated December 24, 1981, Maheu wrote to the plaintiff with respect to the refund claims. The letter may have been mailed on December 24, 1981, but it is possible that it was mailed only on December 27, 1981. It was, in any event, not received by the plaintiff until January 4, 1982. A copy of Maheu's letter is attached hereto as Appendix 5.

14. It has not be[en] possible for the defendant to locate the file concerning the plaintiff's refund claim. The defendant believes the file may have been destroyed in accordance with the usual policy applicable within the Department in respect of old file[s].

15. It appears likely that, once the auditor's report had been approved by the auditor's Supervisor, the refund claim would have been forwarded, along with a Y-7 production report (which has not been located) to the secretary of District Manager of the Department, who would have transferred the claim and the report to the Regional Office, where a payment list (Departmental form E56-1) would be prepared in order for the Department of Supply and Services to issue the appropriate refund cheque. The approval procedure is also subject to the corroboration of the Refunds Manager at the time the E56-1 cheque requisition list is signed. The parties agree that, were Maheu to be called as a witness in these proceedings, Maheu would testify that the description of the process referred to above reflects what actually happened in respect of the refund in issue.

16. A requisition for a refund cheque payable in respect of the plaintiff's application for refund of the federal sales taxes in respect of the sanitary napkins was made, in accordance with the above-noted procedures, on January 4, 1982. The reference, in the documents attached hereto as Appendix 4, on the last line thereof, to "42069" is a reference to the number of the Departmental cheque requisition list (form E56-1) prepared on January 4, 1982. A cheque, signed (mechanically) by the Deputy Receiver General of Canada, was issued on January 4, 1982. The amount of the cheque was $6,242,360.75.

17. The refund cheque was picked up by the plaintiff on or about January 5, 1982 and was deposited by the plaintiff on that date.

18. In computing its income for tax purposes for the 1982 taxation year (ending on January 3, 1982) the plaintiff included the amount of $1,397,502.75 of the refund. This inclusion was before counsel had been consulted with respect to the taxability or non-taxability of the refund. Copies of the plaintiff’s audited financial statements and income tax return for the 1982 taxation year are attached hereto as Appendices 6 and 7, respectively.

19. In computing its income for tax purposes in respect of the 1983 taxation year (which ended on January 2, 1983), the plaintiff included the amount of $4,844,858, which was the balance of the amount of the refund. This inclusion was made before counsel had been consulted with respect to the taxability or nontaxability of the refund. Copies of the plaintiff's audited financial statements and income tax return for the 1983 taxation year are attached hereto as Appendices 8 and 9, respectively.

20. The plaintiff was not certain, at the time the refund was received, that it would not be required to pass on the benefit of the refund to its customers, who had assumed the ultimate economic impact of the federal sales tax in the prices of the sanitary napkins purchased by them. The plaintiff had received numerous claims from customers which had paid the federal sales tax in respect of the purchase of sanitary napkins from the plaintiff. The plaintiff adopted the position that it had no responsibility to pass on the amount of any refund to such customers and resisted such claims from its customers. In the final analysis, no customer instituted proceeding to obtain the benefit of the refund obtained by the plaintiff and the plaintiff has, in fact, retained the full amount of the refund. Copies of letters from some of the plaintiff's customers claiming the benefit of the refund and a sample response, dated April 2, 1982 [1981], from the plaintiff in respect of such claims are annexed hereto as Appendix 10.

21. The plaintiff had, regularly and within the statutory periods for so doing, filed its income tax returns in prescribed form in respect of the prior taxation years in which the federal sales tax, which was ultimately refunded by means of the cheque dated January 4, 1982, had been paid by it and the Minister had, in accordance with the relevant provisions of the Income Tax Act, regularly issued notices of assessment and/or reassessment fixing the tax payable by the plaintiff in respect of such taxation years.

22. Neither Maheu nor Veillette is an official identified as a delegate of the Minister under the Excise Tax Act or applicable Regulations. Neither the Excise Tax Act nor the Regulations applicable thereto, for all purposes relevant to the 1982 taxation year of plaintiff, contained a specific provision by which the authority of the Minister to act thereunder was delegated to identified officials of the Department in respect of the authorization of refund claims under the statute. See, in this regard, SOR 80-391, dated May 3, 1980, a copy of which is attached hereto as Appendix 11. SOR 84-806, dated October 16, 1984, in contrast, did identify specific officials for such purpose. A copy of this latter document is attached hereto as Appendix 12.

23. By Notice of Reassessment dated March 27, 1986, the Minister included the entire amount ($6,242,360.75) of the refund in computing the plaintiff's income for tax purposes for the 1982 taxation year. A copy of the Notice of Reassessment is attached hereto as Appendix 13.

24. The plaintiff objected, within the appropriate statutory delays and in the prescribed form, to the said Notice of Reassessment, which was confirmed by the Minister on March 20, 1987. The present Action was commenced within the appropriate statutory delays to appeal against the said Notice of Reassessment.

Issues

The parties are also in agreement that the issues to be determined are whether the sales tax refund received by the plaintiff constitutes income for purposes of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act") and if so, was the refund amount properly included in the plaintiff's 1982 taxation year.

Plaintiff's position

The plaintiff's basic position is that the refund of sales tax, paid as a reimbursement of an amount previously paid, does not have the character of income and was not derived from the plaintiff's business activities in the income earning process for the 1982 tax year. The plaintiff submits that in this case the sales tax was paid under the compulsion of law, which was subsequently determined to have been wrongfully imposed and collected from the plaintiff, and which was refunded by the Crown. According to the plaintiff, the tax is extraneous to the plaintiff's business in that it has nothing to do with the plaintiff's business but results from the imposition by the Parliament of Canada. The plaintiff maintains that the sales tax refund is properly characterized as a recovery of an expense incurred by the plaintiff in the years prior to its 1981 taxation year. The plaintiff further maintains that the reason the defendant included the amount in income was not because the refund was inherently income from the business, but rather because it represented a recovery of an amount that was deducted in the course of computing the plaintiff's income in its prior taxation years. Therefore, according to the plaintiff, if I were to accept the defendant's reasoning then the mere fact that the sales tax was deducted from income would have the effect of transforming the refund into income from the plaintiff's business.

The plaintiff submits that income under the Act must be income from a source in order for it to be taxed and that in this case the source of the refund is the plaintiff itself, in that it was the plaintiff's money that was refunded by the Crown. The tax was wrongfully paid and then refunded. The plaintiff further submits that neither the plaintiff nor the Crown in refunding the sales tax can reasonably be regarded as a "source" within the meaning of that concept in the Act. Moreover, the plaintiff argues that even on a more liberal interpretation, there can be no income arising through the refund of one's own funds unless there is a specific provision in the law, which is not the situation in this case.

The plaintiff also maintains that if the refund of sales tax paid is considered to be income, it should have been included in the computation of the plaintiff's income in its 1983 taxation year not the 1982 taxation year. In support of its position, the plaintiff notes that there is no dispute that the refund was actually received by the plaintiff in its 1983 taxation year. According to the plaintiff, the exercise of the Minister's discretion in granting the refund was not completed until the 1983 taxation year. Further, the requisitioning of the cheque, the issuing, the signing of the cheque and the delivery of the cheque and ultimately the honouring of the cheque all occurred in 1983.

Defendant's position

The defendant's position is essentially that the refund of tax paid is income for purposes of section 9 of the Act, as it is profit from the plaintiff's business. In its submissions the defendant referred to three different approaches used by courts to determine what is income: the "economic advantage" approach, the "tax benefit” rule (as developed by the U.S. courts) and the “filling in the hole” approach. The defendant maintains that by using any one of these approaches the reimbursement would be considered income. It is also the defendant's contention that it cannot be said that the sales tax has nothing to do with the plaintiff's business.

The defendant submits that, from a practical business point of view, the taxpayer reduced its profit by claiming deductions in each year, in respect of the sales tax paid. When the tax was refunded it should have been included in income as a receivable in 1982 as the plaintiff made an adjustment to its retained earnings. Therefore, by looking at the realities of the situation the plaintiff received an economic advantage because the expenses incurred and claimed in prior years had the effect of reducing its income for those years.

In terms of the "tax benefit rule" reference was made to the case of Hillsboro National Bank v. Commissioner, 460 U.S. 370 (1982), where the basic concept of this rule is described.

The defendant also argues that as the expenses were deductible from the costs of sales, the amount that was returned or was refunded "fills the income hole”, and as the income was deducted under a general principal of section 9, the inclusion of the refund as income should also be covered by that section.

With respect to the second issue the defendant contends that the amount received as a refund for the sales tax should be included as income in the plaintiff's 1982 taxation year. In support of this position, the defendant submits that there is no right of refund unless the conditions of section 44 of the Excise Tax Act, R.S. 1970, c. E-13, as amended, are met. In other words once these conditions are met there is no longer any discretion on the part of the Minister to grant the refund, it is an obligation. The defendant also argues that the issuance of the cheque has nothing to do with the plaintiff's entitlement to the refund. It is simply a method of payment of an obligation and that obligation arose when the conditions of section 44 of the Excise Tax Act were met. Therefore, the plaintiff was entitled to the refund on December 23, 1981 as the conditions of section 44 were met and the Minister no longer had any choice in the matter.

Discussion and conclusions

The first matter that I have to deal with is whether the refund constitutes income for purposes of the Act. Unfortunately, the term "income" is not defined in the Act, nor has it really ever been given a definitive meaning for income tax purposes. Herein lies the very heart of problem in this case, as well as in many of the cases cited by both counsel. As noted in the Canada Tax Service (Carswell), Vol. 1, release number 665, pages 3-107, a person may "have" income or "derive" income but does not strictly "receive" or "own" income. What the person receives and owns is money or things and these "amounts" may or may not be included in computing that person's income. Although, the findings or the fact situation in Oxford Motors Ltd. v. M.N.R., [1959] C.T.C. 195, 59 D.T.C. 1119 (S.C.C.) may not be particularly applicable to the case before me, I believe that Locke, J.'s comments at page 202 (D.T.C. 1122-23), may provide some assistance in how best to approach the question of whether the refund was properly included in the plaintiff's income for tax purposes,

No one has ever been able to define income in terms sufficiently concrete to be of value for taxation purposes. In deciding upon the meaning of income, the Courts are faced with practical considerations which do not concern the pure theorist seeking to arrive at some definition of that term, and where it has to be ascertained for taxation purposes, whether a gain is to be classified as an income gain or a capital gain, the determination of that question must depend in large measure upon the particular facts of the particular case.

Therefore, it is the particular facts before me that I must consider in making my determination. Further, as noted by Thorson, P. in Eli Lilly and Co. (Canada) Ltd. v. M.N.R., [1953] C.T.C. 417, 53 D.T.C. 1252 (Ex. Ct.), at page 423 (D.T.C. 1255):

The validity of an assessment does not rest on what a taxpayer has done in the past or what the taxing authorities have allowed him to do. I am, therefore, not impressed with the argument advanced for the Minister that because the appellant received a tax benefit in the year the foreign exchange was against it should carry a tax burden when the exchange is in its favour, for otherwise, through blowing hot and cold, it would be unjustly enriched. The validity of the assessment must be determined in the light of facts and the applicable law.

I am of the view that the best approach to apply in coming to a resolution of the issue is to try and make a determination based on a” practical and business point of view", in other words, take into account the “business context" in which the sales tax was paid and in which the refund was made and received, as referred to by Stone, J.A. in Mohawk Oil Co. v. Canada, [1992] 1 C.T.C. 195, 92 D.T.C. 6135, in respect of a determination of whether a taxpayer has received a non-taxable"windfall").

In the case before me the applicable sections of the Act are sections 3 and 9. At the relevant time section 3 provided for the inclusion in a taxpayer's income for a taxation year income "from a source inside or outside Canada, including, without restricting the generality of the foregoing, his income for the year from each office, employment, business and property and section 9 provided that "a taxpayer's income for a taxation year from a business or property is his profit therefrom for the year".

After reviewing the submissions, I cannot accept the plaintiff's contention that the refund of sales tax had nothing to do with the activities of the plaintiff in carrying on its business or was extraneous to the plaintiff's business. I agree that in a very strict sense the refund may not be tied to the plaintiff's business of manufacturing and distributing of health care products, in that it was not derived from the manufacture of the goods. However, it was linked to plaintiff's income earning process as it was income that came from the plaintiff's business. It is clear that the price at which the plaintiff sold its products included the federal sales tax and that the plaintiff credited to the calculation of gross income the amount passed on to its customers. Further, from a practical business point of view I do not think that it can be disputed that the plaintiff reduced its profit in each year by claiming deductions in respect of sales tax paid and when the amount was refunded it was included as a receivable and the plaintiff made an adjustment to its retained earnings. Retained earnings are basically accumulated profits of the business.

Another factor that I feel is of some relevance is that the plaintiff adopted the position that it had no responsibility to pass on the amount of the refund to customers, who had assumed the ultimate economic impact of the federal sales tax in terms of the price the plaintiff set for sanitary napkins. From a very practical business standpoint the plaintiff had every intention to and did retain the full amount of the refund.

In support of its proposition that income under the Act must be income from a source in order to be taxed the plaintiff referred to the Federal Court— Trial Division’s decision in Mohawk Oil Co. Ltd. v. Canada, [1990] 2 C.T.C. 173, 90 D.T.C. 6434 (F.C.T.D.), specifically the judge's comment at page 183 (D.T.C. 6442):

I accept the submission of counsel for Mohawk that the reimbursement of moneys previously deducted as an expense does not make this reimbursement taxable income.

In Mohawk, the plaintiff (Mohawk Oil) received an amount in settlement of a claim for breach of contract. Phillips Petroleum was to install a processing plant, however the plant was not doing well and Mohawk Oil sued Phillips for compensation. Part of the compensation was taxed as income and part as capital receipt, because part of Mohawk's claim was for expenditures that were incurred previously or during the duration of the contract. The trial judge found that the facts showed that the payment was in the nature of damages to prevent a lawsuit and loss of reputation and not to compensate for loss of profits. Also, any reimbursement of money was not taxable income. The trial judge considered the amount to be “akin to a windfall” and concluded that although the amounts were properly included as income for accounting purposes, the amounts were not income pursuant to sections 3, 4 and 9 of the Act.

At first blush it appears that the trial judge's comment has some bearing on the case at hand. However, on closer examination, it should be noted that the trial judge determined that the amount Mohawk Oil had received from Phillips Petroleum in settlement of claims for a breach of contract, was not subject to tax on the basis that the amount was "akin to a windfall”. In the case before me, there is no question of whether the refund of sales tax qualifies as a "windfall".

Further, on appeal, the Court of Appeal found that the trial judge erred in failing to take into account the business context in which the payment was made and that his conclusion was based on the erroneous finding that the character of the payment should be determined by reference to the motivation of the payor, instead of the true nature of the loss. The Court of Appeal noted that the cases appeared to support the view that in determining whether a taxpayer has received a windfall, account must be taken of the business context in which a particular payment is made. The Court of Appeal was also not persuaded that the settlement amount was to be viewed as “akin to a windfall” because it exceeded the amount provided for in the termination of damage clause of the purchase agreement. Instead, the Court was of the opinion that the settlement amount, of necessity, included compensation for lost profits and expenditures thrown away and such expenditures could not be considered akin to a windfall (Mohawk Oil Co. v. Canada, supra). Although, the Court of Appeal appears to have made no comment on the above quoted dicta of the trial judge, and there was disagreement between counsel as to whether or not the comment was overturned, I am satisfied that the case can be distinguished, as the issue in Mohawk was essentially whether the amount of compensation received for a breach of contract was“ "akin to windfall” and as I indicated earlier the case before me deals with whether a refund of tax paid amounts to income and that the question of the refund being a windfall was never raised.

On the other hand, I do not wish it to be perceived that I am dismissing the plaintiff's position and the trial judge's comment in Mohawk out of hand because I do agree that the fact that the money was previously deducted does not in and of itself make the reimbursement taxable income. However, I am of the opinion that the circumstances surrounding the refund must be viewed in light of the business context in which it was made and received, before a proper determination can be made if the payment or in this case refund is income for tax purposes. Therefore, on the proper facts I believe a reimbursement may be considered income for tax purposes.

The case of Fleur de Lys Warehousing Ltd. v. M.N.R., [1992] 2 C.T.C. 2158, 91 D.T.C. 1343 (T.C.C.) involved a deduction of business and property taxes on leased premises which were eventually refunded as a result of appeals to the Bureau de révision de l'évaluation foncière du Québec (the Tribunal) and to the Quebec Provincial Court. In that case, the plaintiff was paid a refund amounting to $103,640 in its 1985 taxation year and the Minister included this amount in the plaintiff's income for its 1985 taxation year. The Tax Court concluded that the refund of taxes paid was income and included a portion of the $103,640 in the plaintiff's 1983 taxation year as that amount became receivable in 1983 as a result of the Bureau's decision, which was rendered on April 19, 1983. Garon, T.C.J. made the following comments at pages 2161-62 (D.T.C. 1345-46):

I do not agree with the thrust of the appellant's submission which amounts to saying in effect that a refund of a current expense deducted in a prior year in computing income from a business has no bearing on the computation of business income for an appropriate future year when the entitlement of such refund comes into existence. In my view, it is clear that if the appellant had, for instance, as a result of the institution of appropriate proceedings obtained in the same year, say in 1977, a favourable judgment from the Tribunal, and if it had received in the same year as well the refund of taxes in question that refund would have been reduced to that extent the expense in respect of taxes already deducted in that year and increased by the same amount the appellant's income for the 1977 taxation year

If the proper treatment of a refund of taxes made in the year in which the dispute arose would require an adjustment to the income for the same year I cannot see how the refund of taxes in a year subsequent to that in which the deduction of that expense was made would no longer require an adjustment to the income in respect of an appropriate year. I cannot see how the passage of time could change the character of the reduction of an income expenditure that is brought about by the refund of a portion an expense although, from an accounting point of view, the technique may not be precisely the same Therefore, any adjustment to retained earnings to reflect the refund in a subsequent year of an expense deducted in a prior year would indicate that such an adjustment has a direct bearing on the totality of income or losses accumulated over a given period of time. Such adjustment to retained earnings shows, in my view, the real impact of the refund of an expense on the totality of the income for a stated period.

and at pages 2162-63 (D.T.C. 1346):

I do not see in the case law referred to by Counsel for the appellant in support of this main submission, any authority that would point to the invalidity of the conclusion at which I have just arrived in dealing with the tax treatment that is to be accorded to the refund of taxes made many years after the related expenditure had been properly deducted.

The plaintiff maintains that this decision is not in accordance with the law of Canada and refers to the trial judge’s comment in Mohawk and the Supreme Court of Canada's decision in Eli Lilly & Co. (Canada) Ltd. v. M.N.R., [1955] C.T.C. 198, 55 D.T.C. 1139 (S.C.C.) as having decided the issue of jumping from one taxation year to the next, and having any residue flow through from what has happened in the prior taxation years. With respect to the Mohawk case, I have already given my views. My understanding of the majority decision in Eli Lilly (as noted in the editorial comment of the case reported at [1955] C.T.C. 198) is that a benefit obtained as a result of something which saves a taxpayer's pocket may be taxable as income.

Therefore, after considering the payment of the refund in a business context and in light of the cases referred to, I am satisfied that on these particular facts the refund of sales tax paid was properly considered to be income for the purposes of the Act.

What remains to be determined is whether or not the Minister assessed the income in the proper taxation year, i.e., the plaintiff's 1982 taxation year. There is no dispute between the parties that the refund cheque was actually received in the plaintiff's 1983 taxation year and that the plaintiff received no part of the refund during its 1982 taxation year.

In this regard, I note Urie, j.'s comment in Commonwealth Construction Company Ltd. v. The Queen, [1984] C.T.C. 338, 84 D.T.C. 6420, at page 340 (D.T.C. 6422) that:

There is no question that as a matter of law amounts become taxable as income in the year of receipt provided that the amounts received exhibit the nature and quality of income at that time.

Although that case and others cited by the defendant dealt with receivables" and reserves and the case before me does not, I am of the opinion that the above-quoted passage should be kept in mind in any discussion relating to the question of what year the refund should be included in the plaintiff's income.

When did the plaintiff have an existing right to the refund of sales tax? I agree with the plaintiff's submission that if one follows the kind of reasoning outlined in the Fleur de Lys case, then the plaintiff had an existing right to the refund at the time of the decision of the Tariff Board and the judgment of Federal Court of Appeal, even though these decisions were declaratory and made no reference to quantum of refund, and the Minister would have to assess the income in those prior taxation years. Therefore, if part of the plaintiff's refund for instance, related to the 1979 taxation year, then it is that year the refund should be applied. The case law submitted clearly shows that there is a relation back to the years in which the expense applies (British Mexican Petroleum Co. Ltd. v. Jackson (1932), 16 T.C. 570, English Dairies Ltd. v. C.I.R., [1926-1927] 11 T.C. 597, Maple Leaf Mills v. M.N.R., [1977] 1 S.C.R. 558, [1976] C.T.C. 324, 76 D.T.C. 6182 (S.C.C.) and Benaby Realties Ltd. v. M.N.R., [1968] S.C.R. 12, [1967] C.T.C. 418, 67 D.T.C. 5275 (S.C.C.)). However, in the circumstances, I cannot accept that the plaintiffs existing right to the refund was established when the decisions of the Tariff Board and the Federal Court of Appeal were rendered. As I indicated above, these decisions were merely declaratory or confirmatory.

Further, I am satisfied that we are dealing with a situation which there is a discretion under the Excise Tax Act although 1 do not consider it is necessary for the determination of this case to delve into whether the discretion was required to be exercised, or as in Jack Herdman Ltd. v. The Queen (No.1), [1983] C.T.C. 272, 83 D.T.C. 5274 (F.C.A.), "may grant” means "shall grant" a refund or whether "may" means "may". However, I do agree with counsel for the plaintiff that the exercise of that discretion was not completed until the plaintiff's 1983 taxation year. The substantive elements of the exercise of power, whether discretionary or otherwise, to issue a cheque involved the requisition of a cheque (January 4, 1982), the issuance of a cheque and signature by a duly authorized official on the Crown (January 4, 1982), as well as delivery of the cheque (January 4, 1982) all occurred in the plaintiff's 1983 taxation year. With respect I cannot agree that full and complete Ministerial discretion occurred once the conditions of section 44 of the Excise Tax Act had been met. The process may have started earlier, ie. in 1982, but not until full and complete Ministerial discretion was exercised could the plaintiff expect its full entitlement and right to the refund.

Therefore, for the reasons noted above, I find that the refund of sales tax paid constitutes income for the purposes of the Act and in this regard I would dismiss the appeal. However, I am of the view that the refund was not properly included in the plaintiff's 1982 taxation year and should have been included in the plaintiff's 1983 taxation year.

Costs are awarded to the defendant.

Appeal allowed in part.