Citation:2006TCC82
Date: 20060210
Docket: 2003-3539(IT)G
2003-3541(IT)G
BETWEEN:
PENN WEST PETROLEUM LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Motion heard on February 7, 2006, at Calgary, Alberta
Before: The Honourable Justice D.W. Beaubier
Appearances:
|
Counsel for the Appellant:
|
Barry R. Crump
|
|
Counsel for the Respondent:
|
William Softley
|
____________________________________________________________________
REASONS FOR ORDER ANDORDER
[1] The motion by the Appellant to compel the Respondent's office to answer questions at examination for discovery in respect to both of these appeals was heard at Calgary, Alberta, on February 7, 2, 2006.
[2] The questions objected to are contained in Schedule I attached to the Notice of Motion and hereto as:
(A) page 28, line 21;
(B) page 80, line 7; and
(C) page 81, line 1.
[3] Question (A) and its general context read as follows in the transcript:
Q. I understand that's what you do, and I understand that's what you did, but I'm going to ask you again. With respect to this provision, 3.17(a), is the proposed sharing arrangement in and of itself unreasonable?
A. It's the Minister's position that the sharing ratio is unreasonable after you give consideration to all the facts and circumstances.
Q. I'm asking you to separate out the circumstances, and I'm asking you a very straightforward question about this provision standing alone. Is it on a stand-alone basis unreasonable insofar as the allocation to a retiring partner is concerned? It's the third time I've asked.
MR. SOFTLEY: Well, Mr. Crump, I don't know, in fairness to the witness, I don't know how you can ask the question that divorces the provisions of the agreement that are particular to the circumstances of that agreement and the parties of that agreement from the facts and circumstances of that agreement. You seem to by trying to ask a question that is seeking an answer that removes the facts and circumstances from the agreement, but then yet ask the question with respect to the agreement. I think, with respect, that the witness has answered as fairly as he should be expected to.
MR. CRUMP: Well, he hasn't answered the question, with respect, and it is a cross-examination, and I am quite entitled to ask him, especially where this is the provision at issue, whether or not the provision itself is reasonable or unreasonable, because the Minister comes to a conclusion that the implementation of the provision is unreasonable. So, I'd like to know whether, at first base, the provision by itself is unreasonable, and it's a perfectly proper cross-examination question, and I'd like an answer to that.
MR. SOFTLEY: My submission is that you can't divorce that from the circumstances of the agreement as the witness has answered already.
MR. CRUMP: So, you are instructing him not to answer?
MR. SOFTLEY: I am.
MR. CRUMP: Then I'll reserve by right to take issue with that. Thanks.
(OBJECTION NOTED)
[4] Section 103 of the Income Tax Act, the matter in issue, reads as follows:
SECTION 103: Agreement to share income, etc., so as to
reduce or postpone tax otherwise payable.
(1) Where the members of a partnership have agreed to share, in a specified proportion, any income or loss of the partnership from any source or from sources in a particular place, as the case may be, or any other amount in respect of any activity of the partnership that is relevant to the computation of the income or taxable income of any of the members thereof, and the principal reason for the agreement may reasonably be considered to be the reduction or postponement of the tax that might otherwise have been or become payable under this Act, the share of each member of the partnership in the income or loss, as the case may be, or in that other amount, is the amount that is reasonable having regard to all the circumstances including the proportions in which the members have agreed to share profits and losses of the partnership from other sources or from sources in other places.
(1.1) Agreement to share income, etc., in
unreasonable proportions. Where two or more members of a partnership who are not dealing with each other at arm's length agree to share any income or loss of the partnership of any other amount in respect of any activity of the partnership that is relevant to the computation of the income or taxable income of those members and the share of any such member of that income, loss or other amount is not reasonable in the circumstances having regard to the capital invested in or work performed for the partnership by the members thereof or such other facts as may be relevant, that share shall, notwithstanding any agreement, be deemed to be the amount that is reasonable in the circumstances.
[5] In argument, Appellant's counsel pointed out that the subsection 103(1) does not say "and the principal reason for the agreement in the circumstances may reasonably be considered to be the reduction or postponement of the tax..." Therefore, as he developed his examination for discovery, he narrowed his questions down to the one at issue.
[6] In Baxter v. R., [2004] DTC3497, Bowman, A.C.J. concluded that, in general, a call for conjecture on a hypothetical question by a witness is outside of the reason of relevancy. However such a question may be put to a witness where the witness has either knowledge or expertise and the question is relevant (Motaharian v. Reid, (1989) 39 C.P.C. (2d) 141). In the Court's view that is the case here where the officer presented by the Respondent for discovery is in examination to support the assessment in issue.
[7] For this reason, the witness is ordered to answer the question.
[8] The last two questions are whether a 3rd party, Phillips Petroleum Company Western Hemisphere, was also reassessed. That is not relevant to these appeals and the Respondent's officer is expressly forbidden by statute from revealing that information.
[9] Costs are in the cause.
Signed at Calgary, Alberta, this 10th day of February 2006.
"D.W. Beaubier"
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