Rouleau
J.:—
This
is
an
appeal
from
an
assessment
of
the
Minister
of
National
Revenue
with
respect
to
the
plaintiff’s
1984
taxation
year.
The
plaintiff,
CBS/Fox
Company,
is
a
partnership
organized
under
the
laws
of,
and
carrying
on
business
in
the
United
States.
It
does
not
carry
on
business
or
maintain
a
permanent
establishment
in
Canada.
One
of
its
divisions,
CBS/Fox
Video,
manufactures
and
distributes
video
cassettes.
CBS/Fox
Video
Canada
Limited
(“CBS/Fox
Canada”)
is
a
corporation
incorporated
and
resident
in
Canada
and
is
wholly-owned
by
the
plaintiff.
Under
the
terms
of
a
video
device
franchise
agreement,
the
plaintiff
provides
certain
video
tape
reproduction
masters
to
CBS/Fox
Canada,
which
in
turn,
is
entitled
under
the
terms
of
the
agreement
to
duplicate
from
those
master
video
tapes
for
distribution
within
Canada.
CBS/Fox
Canada
then
pays
royalties
to
the
plaintiff
arising
out
of
the
sale
of
video
cassettes.
During
the
1983
and
1984
taxation
years,
when
CBS/Fox
paid
such
royalties
to
the
plaintiff,
it
first
deducted
and
withheld
15
per
cent
of
the
gross
amount
of
payments
and
remitted
the
amount
withheld
to
the
Receiver
General
for
Canada.
The
Minister
reassessed
the
plaintiff
for
the
1984
taxation
year
in
the
amount
of
$671,323.31.
In
February
of
1985,
it
submitted
a
refund
request
to
Revenue
Canada
in
accordance
with
subsection
227(6)
of
the
Income
Tax
Act.
This
request
was
first
agreed
to
by
the
Minister
on
the
basis
that
royalties
paid
in
respect
of
video
cassettes
are
not
royalties
paid
in
respect
of
“motion
picture
films”
and
thus
are
exempt
from
withholding
tax
in
Canada
by
virtue
of
Article
XIIIC
of
the
Canada-United
States
Income
Tax
Convention,
1942.
Consequently,
the
plaintiff
received
a
full
refund
for
the
amounts
withheld
and
remitted
in
1984.
However,
the
Minister
then
reversed
his
position
with
respect
to
part
of
the
1984
royalties
and
by
notice
of
assessment
dated
December
18,
1987,
assessed
the
plaintiff
for
the
1984
taxation
year
for
non-resident
tax
in
the
amount
of
$671,323.31
on
royalty
payments
of
$4,475,489
paid
or
credited
by
CBS/Fox
Canada
during
the
period
from
January
1,
1984,
to
September
30,
1984.
The
plaintiff
objected
to
this
fresh
notice
of
assessment
by
notice
of
objection
dated
March
14,
1988.
The
Minister
confirmed
the
assessment
on
the
following
basis:
Amounts
no
less
than
$4,475,489
were
paid
or
credited
to
you
by
persons
resident
in
Canada
in
the
year
1984
as
on
account
of
or
in
satisfaction
of,
payment
for
a
right
in
or
to
the
use
of
a
motion
picture
film
within
the
meaning
of
subsection
212(5)
of
the
Act
and
Article
XIIIC
of
the
Canada-United
States
Tax
Convention.
At
issue
in
this
appeal
is
the
proper
interpretation
to
be
accorded
paragraph
212(5)(a)
of
the
Income
Tax
Act
and
Article
XIIIC
of
the
Canada-United
States
Income
Tax
Convention,
1942.
Those
provisions
read
as
follows:
212(5)
Every
non-resident
person
shall
pay
an
income
tax
of
25
per
cent
on
every
amount
that
a
person
resident
in
Canada
pays
or
credits,
or
is
deemed
by
Part
I
to
pay
or
credit,
to
him
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
payment
for
a
right
in
or
to
the
use
of
satisfaction
of,
payment
for
a
right
in
or
to
the
use
of
(a)
a
motion
picture
film,
or
(b)
a
film,
video
tape
or
other
means
of
reproduction
for
use
in
connection
with
television
(other
than
solely
in
connection
with
and
as
part
of
a
news
program
produced
in
Canada),
that
has
been
or
is
to
be
used
or
reproduced
in
Canada.
Article
XIIIC.
Royalties
Royalties
for
the
right
to
use
copyrights
or
in
respect
of
the
right
to
produce
any
literary
dramatic,
musical,
or
artistic
work
(but
not
inclusive
of
rents
or
royalties
in
respect
of
motion
picture
films)
derived
from
sources
within
one
of
the
contracting
states
by
a
resident
or
corporation
or
other
entity
of
the
other
contracting
state
not
engaged
in
trade
or
business
in
the
former
state
through
a
permanent
establishment
shall
be
exempt
from
tax
imposed
by
such
state.
[Emphasis
added.
I
There
is
no
dispute
that
paragraph
212(5)(a)
of
the
Act
is
the
only
relevant
section
for
the
purposes
of
the
present
appeal.
CBS/Fox
Canada
is
not
licensed
to
reproduce
or
sell
video
cassettes
for
use
in
television
broadcasting
or
for
any
use
other
than
home
video
use
and
accordingly
paragraph
212(5)(b)
is
not
applicable.
The
sole
issue
now
before
the
Court
is
whether
the
words
“motion
picture
film”
in
paragraph
(a)
include
a
video
cassette
of
a
motion
picture
film.
The
plaintiff
maintains
that
video
tape
and
film
are
distinct
concepts
by
definition
and
are
not
inclusive
of
each
other.
Affidavit
evidence
was
submitted
distinguishing
between
the
two
technologies,
motion
picture
films
on
the
one
hand,
and
video
tape
and
video
tape
reproduction
masters
on
the
other
hand.
The
plaintiffs
position
is
that
“motion
picture
films”
is
a
term
used
in
relation
to
theatrical
product,
that
is,
film
produced
for
theatrical
exhibition
and
is
not
a
term
used
in
relation
to
video
tape
product.
Motion
picture
films,
it
is
argued,
means
films
which
are
produced
for
the
purpose
of
being
shown
cinematographically
in
theatres,
although
they
may
subsequently
be
transferred
through
an
electronic
process
on
to
a
video
tape
or
video
tape
master.
The
Minister
submits
that
video
tapes
of
motion
picture
films
are
motion
picture
films
for
the
purpose
of
subsection
212(5)
of
the
Income
Tax
Act
and
Article
XIIIC
of
the
Canada-United
States
Income
Tax
Convention,
1942.
Since
the
images
displayed
in
certain
of
the
video
products
in
question
were
originally
displayed
as
motion
picture
films
produced
for
theatrical
display,
the
video
tapes
fall
within
the
meaning
of
motion
picture
films.
I
am
not
prepared
to
allow
the
plaintiffs
appeal.
The
wording
of
paragraph
212(5)(a)
is
clear
and
unequivocal;
a
non-resident
of
Canada
who
is
paid
by
a
resident
for
the
right
in,
or
the
use
of,
a
motion
picture
film,
“that
has
been
or
is
to
be
used
or
reproduced
in
Canada”,
is
subject
to
taxation.
This
has
nothing
to
do
with
public
broadcasting,
which
is
provided
for
in
paragraph
212(5)(b).
Provided
the
right
to
a
motion
picture
film
has
been
sold
for
the
purpose
of
using
that
film
or
reproducing
it
in
Canada,
the
amount
falls
to
be
taxed
under
paragraph
(a).
To
exclude
a
motion
picture
film
from
the
section
simply
because
it
has
been
transferred
to
a
video
tape,
would
defeat
the
manifest
intention
of
Parliament
as
evinced
by
the
language
used
in
both
the.
Income
Tax
Act
and
the
Canada-
United
States
Tax
Convention.
Although
video
tape
may
be
the
method
of
presentation,
the
content
nevertheless
remains
a
motion
picture
film
within
the
ordinary
and
commonly
understood
meaning
of
those
words.
In
this
respect,
I
adopt
the
reasoning
employed
by
Mackay
J.
in
MCA
Television
Ltd.
v.
R.
(sub
nom.
MCA
Television
Ltd.
v.
Canada),
[1994]
2
C.T.C.
148,
94
D.T.C.
6375
(F.C.T.D.),
at
page
169
(D.T.C.
6391):
...the
use
of
theatrical
product,
feature
films
produced
for
theatrical
exhibition
and
subsequently
modified
for
exhibition
by
television,
though
perhaps
technically
modified
in
many
respects
is,
in
my
opinion,
“motion
picture
film”
within
the
meaning
of
those
words
in
Article
XIIIC.
Similarly,
I
conclude
that
video
tape
form
of
the
modified
feature
film
produced
for
theatrical
exhibition
is
also
“motion
picture
film”
within
the
meaning
of
those
words
in
Article
XIIIC.
The
form
in
this
instance
is
not
significant,
as
Mr.
Keeble’s
evidence
made
clear,
it
is
the
product
that
is
significant
and
that
product,
though
converted
to
video
tape
for
presentation
or
exhibition
on
television,
remains
basically
the
theatrical
product
produced
originally
for
theatrical
exhibition,
albeit
modified
technically
and
in
some
dramatic
aspects
for
exhibition
by
television.
That
reasoning
is
entirely
applicable
to
the
facts
of
the
present
case.
The
plaintiff
has
indicated
that
for
the
taxation
year
in
question,
approximately
13
per
cent
of
the
revenue
derived
by
it
from
the
titles
it
distributed
through
CBS/Fox
Canada,
did
not
involve
motion
picture
films,
and
were
for
example,
videos
of
children’s
programming,
sports
programming,
musical
video
and
a
variety
of
other
non-picture
film
products.
The
defendant
conceded
at
the
hearing
before
me
that
these
revenues
are
not
taxable
under
paragraph
212(5)(a).
Furthermore,
I
have
to
assume
that
video
cassettes
that
do
not
originate
as
motion
picture
films
are
caught
by
paragraph
212(5)(b)
if
the
distributor
has
the
right
to
sell
or
lease
for
public
broadcasting.
In
all
other
respects
however,
the
plaintiffs
appeal
is
dismissed
for
the
reasons
set
out
above.
Costs
to
the
defendant.
Appeal
dismissed
for
the
most
part.
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