Rosebery-Surprise Mining Co. v. The King, [1924] SCR 445

Supreme Court of Canada

Rosebery-Surprise Mining Co. v. The King, [1924] S.C.R. 445

Date: 1924-06-08

Rosebery-Surprise Mining Company Appellant;

and

His Majesty The King Respondent.

1924: May 15; June 08

Present: Idington, Duff, Mignault and Malouin JJ. and Maclean ad hoc.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Taxation—Income tax—Mining company—Deductions from gross income —Taxation Act, R.S.B.C. (1911) c. 222—(B.C.) 1917, c. 62, ss. 8, 15.

In 1917, K. assigned to the appellant company an option to purchase certain mining properties from S. By the assignment, the appellant acquired the immediate right to take possession of the property, to work it, to ship the ore produced and to retain 90 per cent of the proceeds, depositing 10 per cent in the Bank of Montreal to the credit of S. to be applied on the final instalment of the purchase price when paid but to belong to S. in any event. The appellant company was to pay $17,500 upon the execution of the option, the same sum in 1918, 1919 and 1920, and $80,000 in 1921. In 1918, the appellant, being assessed to income tax in respect of the income derived from the mine, claimed as deductions: 1, as to the 10 per cent of the proceeds of the mine paid to S.; 2, as to the instalment of $17,500 paid to K.; 3, as to the costs of plant additions, and 4, for depletion of mine. These deductions were disallowed by the Court of Revision.

Held, that (reversing the judgment of the Court of Appeal), as to the first claim, the 10 per cent of the proceeds of the mine paid to the credit of S. should have been declared a proper deduction; (affirming the judgment of the Court of Appeal), as to the second claim, the determination of the assessor made in conformity with the provision of the Taxation Act, treating the payment of $17,500 as part of the purchase price and therefore chargeable against capital rather than against revenue, should not be disturbed; Idington J. contra; as to the third claim, upon the facts, such expenses have been properly treated by the assessor as a capital expenditure; and as to the fourth claim, allowance for depletion of mine is entirely within the discretion of the Minister of Finance for the province (s. 6, ss. 9 of c. 79 of the Statute of 1919.)

Judgment of the Court of Appeal ([1924] 1 W.W.R. 1017) reversed in part.

APPEAL from the decision of the Court of Appeal for British Columbia[1] affirming the judgment of the Court of Revision as to assessment of the appellant company for income tax.

[Page 446]

The material facts of the case are fully stated in the above head—note and in the judgments now reported.

Hamilton K.C. for the appellant.

Donaghy for the respondent.

IDINGTON J.—This is an appeal by the said company from a judgment of the Court of Appeal for British Columbia dismissing an appeal from a special Court of Revision held at the city of Kaslo on the 30th of January, and following days, 1923.

Four grounds of appeal are taken. The appellant had an option to purchase a mine and pending that the right to operate it, and bound itself to pay into the Bank of Montreal ten per cent of the smelter returns to be held for the vendor until the expiration of the option and ultimately to become the vendor's if there was default in accepting the option and paying the prices named.

But in the event of the appellant accepting the option it might claim this fund belonging tentatively to the vendor as part of the price and get credit for it.

The appellant may never accept the option. Meantime it clearly is a charge upon its earnings and I agree with Chief Justice McDonald in the Court of Appeal[2] in holding that such sums as thus paid, are not part of the taxable income of appellant, and that the appeal should be allowed with costs throughout against the respondent.

I cannot see how the well known rule of law in regard to the necessity of taxing statutes being so restricted as to render them clear beyond doubt can otherwise be observed than by doing so, making them apply to present realities instead of to speculative chances.

The next ground of complaint is as to an item of $17,500 due under and by the terms of another similar agreement for an option but payable as cash direct for the year in question.

For the same reason, as the option had not yet been taken up, I think that was a sum which should have been allowed as a deduction from the gross income and, therefore, am of the opinion that this appeal should be allowed with costs throughout as against respondent.

[Page 447]

There is another, or third claim, for expenses in way of erections on the mining premises which probably might have been allowed if shown to be of such an incidental nature as to render it clearly part of the reasonably necessary expense to recover the minerals, but I agree with the said Chief Justice that in the absence of evidence it is not possible to allow such reduction. The fourth claim is for depletion in the value of the mine, but the statute seems to bar any such reduction and, even if it did not, I fail to see how we could arrive at any correct determination or give, in an appeal of this kind, any directions to arrive at any adequate or accurate result.

I agree with appellant's counsel that in reason it may be a claim founded in justice, but in law, as the Taxation Act stands, nothing can be done unless by the respondent.

The adding of these last two grounds has not made any material addition to the costs.

And as there has only been one cause, or course of litigation, in these appeals as if all the said causes of appeal formed one suit, of course there should be only one set of costs throughout.

DUFF J.—The controversy in this appeal arose in these circumstances: On the 1st January, 1918, one Kent assigned to the appellant company an option to purchase certain mining properties from one Sellon. By the assignment the appellant company acquired the immediate right to take possession of the mining property, to work it, to ship the ore produced and to retain ninety per cent of the proceeds, depositing ten per cent in the Bank of Montreal to the credit of Sellon. In the event of the option being exercised, this share of ten per cent was to be applied in liquidation of the purchase price, but was to belong to Sellon in any event. The appellant also acquired the right to the immediate possession and use of the mining mill at Roseberry. By the terms of the option the appellant company was to pay $17,500 upon the execution of the instrument creating it, and the same sum on a specified date in each of the years 1918, 1919 and 1920, and the residue of the purchase price, $80,000, on the 10th November, 1921.

[Page 448]

In the year 1918, the appellant company was assessed to income tax in respect of the income derived from this mine. Certain deductions claimed having been disallowed, an appeal taken to the Court of Appeal for British Columbia was dismissed, and from that judgment the appellant now appeals.

The first question relates to Sellon's share of the proceeds of the smelter returns for the ore shipped pursuant to the privilege given under the option. I cannot concur with the view of the Court of Appeal as regards this claim. It is quite true that the whole of the smelter returns came into the hands of the appellant company, but as regards ten per cent of them, the company received the money not as its own property, but as the property of Sellon. It was the company's duty to pay that part of the receipts into the bank immediately for Sellon. If anybody was assessable in respect of the sum so paid in, it was Sellon, and not the appellant company. In Forrest v. Traves[3], the full court of British Columbia, having occasion to consider a clause framed in identical terms, held that an equitable charge upon the ore shipped had been created in favour of the mine owner. The decision was reversed upon another point by this court[4], but the majority of this court concurred with the view of the court below as to the effect of the clause.

As to the second claim, the appellants' contention is based upon no. 2 of the enumeration of deductions allowed in form 7 as amended by section 15 of c. 62 of the statutes of 1917. The deduction is defined in these words:

Outgoings or necessary expenses, actually incurred and paid out in the production of the income by the taxpayer, other than expenditures on capital account or reinvestment account or to replace or provide against depreciation.

It is necessary, however, to refer also to section 76 as reenacted by section 8 of c. 62 of the statutes of the same year, which provides that none of the deductions set forth by form 7 shall include

any expenses or charges which ought, in the opinion of the assessor, to be chargeable against the capital of the taxpayer, and not against revenue.

[Page 449]

I think it is open to question whether or not the determination of the assessor, upon a question arising under this clause, is open to review. At all events, the language of the clause seems sufficiently to indicate an intention that, in so far as the question is a question of fact, the assessor's opinion should be final. If, therefore, the assessor might reasonably take the view that the deduction claimed was a deduction properly chargeable against capital, his determination ought not, in my opinion, to be disturbed. The precise claim is this: The appellant company, in 1918, paid under the terms of the option the $17,500 required to keep the option alive. It is strictly true, no doubt, that the annual payments under the option are expenses necessarily incurred by the appellant company in earning the income it receives from the production of ore; but nevertheless this sum in each instance is in part a sum paid for the right to mine during the succeeding twelve months. If the final payment be made, it is a part of the purchase money paid for the title to the mine in fee; but whether the final payment be or be not made, each successive instalment is capable of being looked at as the purchase price paid by the holder of the option for the absolute right he thereby acquires to take from the mine the ore mined during the succeeding year, which thereupon becomes his own, subject to the equitable charge above-mentioned, as well as for the maintenance of his potential right to its fee which ripens into the actual right upon full performance of the conditions. To regard these payments as purchase price, and therefore as chargeable against capital rather than against revenue, could not, I think, be considered an unreasonable view. On that claim I think the appeal fails.

The third and fourth claims also fail, in my opinion; the third because on the facts it seems impossible to affirm that the expenditure has not been properly treated as a capital expenditure; and the fourth on the ground that the statute manifests an intention that such claims should be dealt with by the Minister of Finance.

The appeal should be allowed as to the first claim, but otherwise dismissed. The appellant company is entitled to the costs of the appeal.

[Page 450]

MIGNAULT J.—I am of opinion to allow the appeal with costs to the extent, and for the reasons, stated by my brother Duff.

MALOUIN J.—I concur with Mr. Justice Duff. I would allow this appeal as to the first claim, but otherwise dismiss it, with costs against the respondent.

MACLEAN J.—I have had the opportunity of reading the written judgment of Duff J. in this appeal, and I agree with the conclusions he has reached.

Appeal allowed with costs.

Solicitors for the appellant: Hamilton & Wragge.

Solicitors for the respondent: Nisbet & Graham.