International Harvester Co. of Canada v. The Provincial Tax Commission, [1941] SCR 325

Supreme Court of Canada

International Harvester Co. of Canada v. The Provincial Tax Commission, [1941] S.C.R. 325

Date: 1941-04-22

International Harvester Company of Canada, Limited Appellant;

and

The Provincial Tax Commission, The Commissioner of Income Tax, The Provincial Treasurer, and The Attorney-General for Saskatchewan. Respondents.

1940: October 15, 16, 17, 18; 1941: April 22.

Present: Duff C.J. and Kinfret, Crocket, Davis, Kerwin, Hudson and Taschereau JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN

Income tax—Companies—Constitutional law—Extra-provincial company selling some of its products within the province—Assessment of company by the province for income tax—Income tax on "the net profit or gain arising" from business in the province—Company not keeping separate profit and loss account in respect of business done in the province—Statute authorizing regulations for determining a company's income within the province where such income cannot be ascertained—Regulation providing that such income shall be taken to be such percentage of company's income "as the sales within the province bear to the total sales"—Constitutionality of statute and regulation—Validity of regulation arid assessment, having regard to the statute—Error in assessment in not allowing for deduction in respect of reserve for bad debts—Right of appeal in respect of assessments for income tax in Saskatchewan—Saskatchewan statutes: The Income Tax Act, 1932, c. 9, and amending Acts; The Income Tax Act, 1936 c. 15, and amending Acts; 1934-35, c. 6 (amending The Treasury Department Act); The Treasury Department Act, 1938, c. 8, and amending Acts.

Appellant company had its head office and central management and control at Hamilton in the province of Ontario. It had branch offices in the province of Saskatchewan. It manufactured agricultural implements, the manufacture being wholly outside of Saskatchewan. It sold its products in Saskatchewan and elsewhere. All moneys received in Saskatchewan, for sales or in payment of debts, were deposited in separate bank accounts and remitted in full to the head office in Hamilton. It kept no separate profit and loss account in respect of the business done in Saskatchewan; it kept at its head office in Hamilton a profit and loss account of its entire business.

By statute of Saskatchewan, every corporation and joint stock company "residing or ordinarily resident or carrying on business within the province" must pay a tax upon its income during the preceding year. "Income" was defined (in part) as "the annual net profit or gain * * * as being profits * * * received by a person * * * from any trade, manufacture or business * * * whether derived from sources within Saskatchewan or elsewhere." Profits earned by a corporation or joint stock company (other than a personal corporation) "in that part of its business carried on at a branch or agency outside of Saskatchewan" were not liable to

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taxation. The income liable to taxation of every person (including any body corporate and politic) residing outside of Saskatchewan, who was carrying on business in Saskatchewan, "shall be the net profit or gain arising from the business of such person in Saskatchewan" (Income Tax Act, 1932, s. 21 a; Income Tax Act, 1936, s. 23). Where the Minister was unable to determine or to obtain the information required to ascertain the income within the province of any corporation or joint stock company or of any class of corporations or joint stock companies, the Lieutenant-Governor in Council might make regulations for determining such income within the province or might fix or determine the tax to be paid by a corporation or joint stock company liable to taxation. Regulations were issued "covering such cases where the Minister is unable to determine or obtain information required to ascertain the income within the Province of a corporation or joint stock company carrying on a trade or business within and without the Province." A regulation (applied in the present case) provided that the income liable to taxation "shall be taken to be such percentage of * * * the income as the sales within the Province bear to the total sales "; the sales being measured by the gross amount received from sales and other sources (certain kinds of receipts being excluded). Provision was made for a taxpayer objecting as to the application of such method to his business and for re-determining the taxable income by some other method of allocation and apportionment as the Commissioner might decide.

On August 23, 1938, the Commissioner of Income Tax made assessments upon appellant in respect of its income for each of the years 1934, 1935, and 1936, applying the regulation above quoted. Appellant appealed unsuccessfully from the assessments, first to the Board of Revenue Commissioners and then to Anderson J. ([1939] 3 W.W.R. 129). It then appealed to the Court of Appeal for Saskatchewan, which held ([1940] 2 W.W.R. 49) that, on consideration of the relevant statutes, there was no right of appeal to it in respect of the assessment for 1934, and the appeal as to that assessment should be dismissed for want of jurisdiction; but that there was a right of appeal in respect of the assessments for 1935 and 1936; and that the assessments for 1935 and 1936 were defective in that they did not provide for allowance for deduction in respect of a reserve for bad debts, and should be set aside, and in making new assessments the question of such reserve should be reconsidered in the light of the reasons for judgment of the Court of Appeal; but that all other objections to the assessments failed. On appeal and cross-appeal to this Court:

Held (per Rinfret, Crocket, Kerwin and Hudson JJ.): (1) There was a right of appeal to the Court of Appeal with respect to the assessments for 1935 and 1936, as held by the Court of Appeal; but there was also a right of appeal to the Court of Appeal with respect to the assessment for 1934. (Provisions of the following Saskatchewan Acts considered: The Income Tax Act, 1932, c. 9, and amending Act, 1934-35, c. 16; An Act to amend The Treasury Department Act, 1934-35,. c. 6; The Income Tax Act, 1936, c. 15; and amending Acts, 1937, c. 8; 1938, c. 91 (s. 2); 1939, c. 9; The Treasury Department Act, 1938, c. 8; and amending Acts, 1940, c. 5, c. 6).

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(2) The application of the above quoted regulation was validly adopted in the method of assessment. The regulation, and the authorizing statutory enactment, were intra vires. Their purpose was to reach by taxation only the income arising from the business in Saskatchewan, of non-resident companies which carry on business in Saskatchewan, and the purpose of their application in the present case was to reach by taxation only the income arising from appellant's business in Saskatchewan. And the adoption of such method was proper under the circumstances, as being the best available means to ascertain that income. (Bank of Toronto v. Lambe, 12 App. Cas. 575; Attorney-General v. Till, [1910] A.C. 50, at 72, cited).

(3) The holding of the Court of Appeal that the assessments for 1935 and 1936 were defective as aforesaid and should be set aside, and the direction for reconsideration of the question of a reserve for bad debts, should be affirmed; but the same holding and direction should be applied in respect of the assessment for 1934.

Per the Chief Justice and Davis and Taschereau JJ. (dissenting): The assessments were invalid because the regulation pursuant to which they purported to be made either did not apply to appellant or was beyond the powers of the Lieutenant-Governor in Council. The essence of appellant's profit making business is a series of operations as a whole (including manufacturing, etc.). Though that part of the proceeds of appellant's sales in Saskatchewan which is profit is received in Saskatchewan, yet it cannot be said that the whole of such profit "arises from" that part of its business which is carried on there within the contemplation of s. 21a (above quoted, of the Act of 1932—the same as s. 23 of the Act of 1936). The effect of the words "net profit or gain arising from the business of such person in Saskatchewan" in s. 21a is, for the purpose of s. 21a, to delete from the definition of "income" above quoted the words "or elsewhere." The policy of the Act, as shown by s. 21a, along with other provisions, is that the profits taxable under s. 21a as "arising from the business" of a non-resident "in Saskatchewan" are that part of the profits which is earned therein, and to remove from the incidence of income tax profits earned elsewhere, without regard to the place where those profits may have been received. (Commissioners of Taxation v. Kirk, [1900] A.C. 588, referred to as helpful in the elucidation of the Act now in question). In the present case the method of determination adopted, as put in the regulation, was to ascertain the ratio of the sales in Saskatchewan to the total sales and then apply that ratio to the income (profits). As determined by this method, the subject of taxation is a percentage of the sales in Saskatchewan, a percentage which is identical with the ratio between total profits and total sales. Under the regulation applied, the subject of income tax is that part of the sales in Saskatchewan which is profit; that is to say, the whole of the profit received in Saskatchewan. This is a procedure wholly inadmissible under the Act. Nowhere does the Act authorize the Province to tax a manufacturing company, situated as appellant is, in respect of the whole of the profits received by the company in Saskatchewan. It is not the profits received in Saskatchewan that are taxable; it is the profits arising from its business in Saskatchewan; not the profits arising from its manufacturing business in Ontario and from its operations in Saskatchewan taken together, but the profits arising

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from its operations in Saskatchewan. The enactment authorizing the making of regulations limits the authority to making regulations "for determining such income within the province"; "such income" being the income contemplated by the taxing provisions of the Act as the subject of income tax; i.e., in the case of non-resident companies, the profits arising out of that part of their business that is carried on in Saskatchewan. Consequently, the regulation in question, if it applied to non-resident companies such as appellant, was not competently made, because its aim was not within the purpose for which the statutory authority was given. The aim of the regulation was to determine the profits received by such companies in Saskatchewan; the authority was to make regulations for determining the net profits as limited and defined by s. 21a.

APPEAL from the judgment of the Court of Appeal for Saskatchewan[1] in so far as it dismissed the present appellant's appeals from the judgment of Anderson J.[2] dismissing its appeals from the decision of the Board of Revenue Commissioners of Saskatchewan dismissing its appeals from three assessments, all bearing date August 23, 1938, for income tax in respect of the years 1934, 1935, and of the period of ten months ending October 31st, 1936, respectively.

The formal judgment of the Court of Appeal was in part as follows:

* * * and this Court having held that there is no appeal from the decision of the said Judge in Chambers in respect of the said assessment for the taxation year 1934, but that the said assessments for the taxation years 1935 and 1936 should be set aside because they are defective in so far as a reserve for bad debts is concerned, and this Court having awarded the appellant two-thirds of its costs incurred in this Court and below, and having held that on all other grounds the said appeals fail;

1. THIS COURT DOTH HEREBY ORDER AND ADJUDGE that there is no appeal from the decision of the said Judge in Chambers under the Income Tax Act of 1932, and that therefore the said appeal in respect of the said assessment for the taxation year 1934 be and the same is hereby dismissed on the ground that this Court has no jurisdiction to entertain the same.

2. THIS COURT DOTH FURTHER ORDER AND ADJUDGE that the said assessments for the taxation years 1935 and 1936 respectively are defective in that they do not make provision for the appellant being allowed any deduction in respect of a reserve for bad debts, and that the said assessments for the said years 1935 and 1936 be and the same are hereby set aside.

3. AND THIS COURT DOTH FURTHER ORDER that the Commissioner in making new assessments for the said years 1935 and 1936 shall reconsider the question of a reserve for bad debts in the light of the

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reasons for judgment of this Honourable Court delivered this day, and shall exercise the discretion vested in him by section 6 (d) of the Income Tax Act, 1936, upon sound principles.

4. AND THIS COURT DOTH FURTHER ORDER AND ADJUDGE that the respondents do pay to the appellant two-thirds of the appellant's costs of and incidental to its said appeals to this Court and its said appeals to a Judge of the Court of King's Bench, such costs to be taxed on the King's Bench scale.

Special leave to appeal to the Supreme Court of Canada was granted to the appellant by the Court of Appeal for Saskatchewan. Appellant's notice of appeal (following in effect the provisions of the order granting special leave) limited its appeal to complaint against

clause 1 of the formal judgment or order of the Court of Appeal and the judgment or decision of the said Court that on all other grounds, except with respect to the deduction in respect of a reserve for bad debts, as ordered in clauses 2 and 3 of the formal judgment or order of the Court of Appeal, the appellant's appeals fail, and including among the part complained of the disallowance by the said Court (in clause 4 of the formal judgment or order) of one-third of the appellant's costs of its appeals to this Court and to a Judge of the Court of King's Bench.

The respondents cross-appealed, contending that the Court of Appeal should have held that there was no appeal from the decision of the Board of Revenue Commissioners with respect to the assessments for the taxation years 1935 and 1936 respectively; or, if it be held that the Court of Appeal had jurisdiction to hear the appeals with respect to said assessments, then it erred in holding that the Commissioner of Income Tax, in making an allowance for bad debts, made a mistake in law in arriving at the amounts to be assessed; and that the Court of Appeal erred in its award as to costs; and asked for variations in the judgment of the Court of Appeal accordingly.

The material facts of the case, the statutes involved, and the questions in dispute are sufficiently stated in the reasons for judgment in this Court now reported.

The appeal to this Court was allowed in part. The assessment for the taxation year 1934 was set aside and the same directions were given to the Provincial Tax Commissioner in reconsidering the question of a reserve for bad debts as the directions contained in paragraph 3 of the order of the Court of Appeal with respect to the taxation years 1935 and 1936. Appellant was to have one-half of its costs of its appeal. The cross-appeal was

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dismissed with costs. The Chief Justice and Davis and Taschereau JJ. would allow the appeal and quash the assessments.

Frank L. Bastedo K.C. for the appellant.

Samuel Quigg K.C. for the respondents.

The judgment of the Chief Justice and Davis and Taschereau JJ. was delivered by

The Chief Justice—The appellant company carries on the business of manufacturing and selling agricultural machinery and parts thereof. The Company is incorporated under the Companies Act of Ontario and is registered in Saskatchewan under the Companies Act of that province.

Its head office is at Hamilton, Ontario. Its manufacturing business is carried on wholly outside Saskatchewan. The Company sells its products in Saskatchewan, as well as in other parts of Canada. It is admitted that the central management and control of the Company are at the head office in Hamilton.

On the 23rd of August, 1938, the Commissioner of Income Tax for Saskatchewan made assessments upon the Company in respect of its income for each of the years 1934 to 1936 inclusive. The subject of the tax, the taxable income of the Company for those years, was "determined" by the Commissioner in professed exercise of his authority under regulations approved by Order in Council of the 23rd of November, 1933; which regulations purport to derive their authority from sec. 7 (4) of the Income Tax Act of 1932, chap. 9 of the Statutes of that year.

These assessments are, in my opinion, invalid for the reason that the regulation pursuant to which they purport to be made either does not apply to the appellant company, or was beyond the powers of the Lieutenant-Governor in Council.

The special provision governing the appellant company in respect of income tax is sec. 21a of the Statute of 1932, which is in these words:—

The income liable to taxation under this Act of every person residing outside of Saskatchewan, who is carrying on business in Saskatchewan, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Saskatchewan.

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The appellant company is admittedly resident outside of Saskatchewan, within the meaning of this provision; and the business of the Company in Saskatchewan is limited to making contracts of sale by its agents and by them receiving the proceeds of such sales. The profits of the Company are derived from a series of operations, including the purchase of raw material or partly manufactured articles, completely manufacturing its products and transporting and selling them, and receiving the proceeds of such sales. The essence of its profit making business is a series of operations as a whole. That part of the proceeds of sales in Saskatchewan which is profits is received in Saskatchewan, but it does not follow, of course, that the whole of such profit "arises from" that part of the Company's business which is carried on there within the contemplation of section 21a; and I think such a conclusion is negatived when the language of this section is contrasted with that of other sections of the Act.

By section 3, income is defined; and income of the kind we are considering, profits of a business, is "profits *. * * received by a person * * * from any trade, manufacture or business * * * whether derived from sources within Saskatchewan or elsewhere."

It is clear, I think, that the effect of the words "net profit or gain arising from the business of such person in Saskatchewan" in section 21a is, for the purpose of that section, to delete from the definition of income in section 3 the words "or elsewhere."

This view of section 21a is fortified by the language of other provisions. In section 4 it is enacted:—

The following incomes shall not be liable to taxation hereunder:

***

(m) profits earned by a corporation or joint stock company * * * in that part of its business carried on at a branch or agency outside of Saskatchewan.

"Branch or agency" seems to point to companies having their principal place of business in Saskatchewan and it is, perhaps, to such companies that the subsection is primarily directed. The word "agency" may be comprehensive enough to extend to any establishment of the Company, even at the place of its head office; but it is sufficient to point out that even in the case of companies whose seat of business is in Saskatchewan, the policy of

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the Statute is to remove from the incidence of income tax profits "earned" at "branches or agencies" elsewhere, without regard to the place where those profits may have been received.

The language of sections 23 and 24 seems also to give support to the view that the profits taxable under section 21a as "arising from the business" of a non-resident "in Saskatchewan" are that part of such profits as is "earned" therein.

Mr. Bastedo relied upon Commissioners of Taxation v. Kirk[3], and I think, with respect, that the judgment of Lord Davey, speaking for the Judicial Committee, is helpful in the elucidation of the Statute before us.

The income in question was in part derived from ore extracted from land in New South Wales and from the conversion there of this ore into a merchantable product. The Income Tax Statute of New South Wales charged within income tax income "derived from lands of the Crown held under lease or licence" in New South Wales, and income "arising or accruing" from "any other source" in New South Wales. The Statute provided that "no tax shall be payable in respect of income earned" outside New South Wales. The company whose income came into question in that case was a mining company owning and working mines in New South Wales, the crude ore being there converted for the most part into concentrates. Almost the whole of the ore so treated was sold and the contracts for sale were made outside New South Wales. The Supreme Court of New South Wales held, following a previous decision, In re Tindal[4], that the whole of the income included in the proceeds of sales was earned and arose at the place where the sales were made and the proceeds of the sales received, and that, consequently, no part of such proceeds was taxable as income in New South Wales.

This judgment was reversed by the Judicial Committee. Their Lordships said at pp. 592 and 593:—

Their Lordships attach no special meaning to the word "derived," which they treat as synonymous with arising or accruing. It appears to their Lordships that there are four processes in the earning or production of this income: (1) the extraction of the ore from the soil; (2) the conversion of the crude ore into a merchantable product, which is a

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manufacturing process; (3) the sale of the merchantable product; (4) the receipt of the moneys arising from the sale. All these processes are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages. The first process seems to their Lordships clearly within sub-s. 3, and the second or manufacturing process, if not within the meaning of "trade" in sub-s. 1, is certainly included in the words "any other source whatever" in sub-s. 4.

So far as relates to these two processes, therefore, their Lordships think that the income was earned and arising and accruing in New South Wales. * * * This point was, if possible, more plainly brought out in Tindal's case[5]. * * * The question in that case, as here, should have been what income was arising or accruing to Tindal from the business operations carried on by him in the Colony.

The fallacy of the judgment of the Supreme Court in this and in Tindal's case5 is in leaving out of sight the initial stages, and fastening their attention exclusively on the final stage in the production of the income.

The distinction under the Statute there in question between "income received" and "income earned" is signalized by their Lordships in these observations at p. 592:—

Nor is it material whether the income is received in the Colony or not if it is earned outside the Colony. The Supreme Court have thought in Tindal's case5 and in these cases that the income was not earned in New South Wales because the finished products were sold exclusively outside the Colony.

The Deputy Attorney-General in his able argument contended that by sec. 21a of the Saskatchewan Act all profits received in Saskatchewan by a company having its residence outside Saskatchewan are taxable as profits "arising out" of that part of the company's business carried on in Saskatchewan. Sufficient has been said to indicate the grounds upon which, I think, considerations on which their Lordships in the Judicial Committee proceeded in Kirk's case[6] are pertinent here, and lead to the conclusion that this contention of the Crown ought not to be accepted.

I now turn to the regulation, the pertinent parts of which are as follows:—

Covering such cases where the Minister is unable to determine or obtain information required to ascertain the income within the Province of a corporation or joint stock company carrying on a trade or business within and without the Province.

1. Interest, dividends, rents and royalties less their proportionate share of deductions allowed shall be separately determined or ascertained, and if they are received in connection with the trade or business of the taxpayer in the Province, shall be income liable to taxation.

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2. The income referred to in regulation 1 having been separately determined and ascertained, the remainder of the income of the taxpayer liable to taxation shall be taken to be such percentage of the remainder of the income as the sales within the Province bear to the total sales.

The income with which we are concerned is that dealt with in paragraph two. The method of determination, as it is put in the regulation, is to ascertain the ratio of the sales within the province to the total sales of the company and then apply that ratio to the income. Income, for our present purpose, of course, means profits. I think, perhaps, I can explain my way of looking at the regulation more clearly by calling attention to the fact that the subject of taxation, as determined by this method, is a percentage of the sales in Saskatchewan, a percentage which is identical with the ratio between total profits and total sales. Assume, for example, that the total sales amount to one hundred units of money and the total profits to twelve units of money and the sales in Saskatchewan to fifteen units of money. Then the subject of taxation is twelve per cent. of fifteen, an expression which, of course, is arithmetically identical with the expression fifteen per cent. of twelve, the form in which it is put in the regulation. In other words, under the regulation the subject of income tax is that part of the sales in Saskatchewan which is profit; that is to say, the whole of the profit received in Saskatchewan. This view of the effect of the regulation was not disputed by Mr. Quigg, who, as above intimated, supported it in argument as a proper application of the statutory provisions. I humbly think that this is a procedure wholly inadmissible under the Statute. Nowhere does the Statute authorize the Province of Saskatchewan to tax a manufacturing company, situated as the appellant company is, in respect of the whole of the profits received by the company in Saskatchewan. It is not the profits received in Saskatchewan that are taxable; it is the profits arising from its business in Saskatchewan, not the profits arising from the company's manufacturing business in Ontario and from the company's operations in Saskatchewan taken together, but the profits arising from the company's operations in Saskatchewan.

Section 7 (4), which is the enactment under which the Lieutenant-Governor in Council receives his authority to make regulations, limits that authority to making regulations

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"for determining such income within the province"; "such income" being (it cannot be anything else) the income contemplated by the taxing provisions of the Statute as the subject of income tax; that is to say, in the case of companies not resident in Saskatchewan, the profits arising out of that part of their business that is carried on in Saskatchewan. The regulation, consequently, if it applies to non-resident companies such as the appellant company, is not competently made, because the aim of it is not within the purpose for which the statutory authority is given to the Lieutenant-Governor in Council. The aim of the regulation is to determine the profits received by such companies in Saskatchewan. The authority is to make regulations for determining the net profits as limited and defined by section 21a.

The appeal should be allowed and the assessments set aside. The appellant company should have its costs throughout.

The judgment of Rinfret, Crocket and Kerwin JJ. was delivered by

Rinfret J.—The appellant is a company incorporated under the Companies Act of the Province of Ontario, having its head office in the city of Hamilton, in that province. It is registered under the provisions of the Saskatchewan Companies Act.

The business of the appellant is the manufacture and sale of agricultural implements and parts thereof and business incidental thereto. The manufacture of these implements and parts is carried on by the appellant entirely outside the province of Saskatchewan. The sale is carried on partly in the province of Saskatchewan and partly in other provinces of Canada and in other countries.

All sales made in Saskatchewan of the appellant's goods are made by the agents of the appellant, at its various branch offices in Saskatchewan; and the sale contracts in respect of such goods are made and executed in Saskatchewan.

All moneys received by the appellant in Saskatchewan, whether in respect of sales or as payments on debts owing to the appellant, are deposited in separate bank accounts and remitted in full to the head office of the appellant in Hamilton, Ontario.

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There are no directors of the appellant resident in Saskatchewan and no meetings of the Board of Directors of the appellant are held in that province. The central management and control of the appellant are held in the province of Ontario.

The appellant keeps no separate profit and loss account in respect of the business it carries on in the province of Saskatchewan. It only keeps at its head office a profit and loss account of its entire business carried on in Canada and elsewhere.

The province of Saskatchewan levies a tax upon incomes authorized by The Income Tax Act, 1932, which later was followed by a new Act (practically a consolidation of the former Act and its amendments) assented to on April 1st, 1936. This Act of 1936 replaced the Act of 1932 which it repealed, except in certain respects, of which more will have to be said later.

Under the Act of 1932, every person liable to taxation shall on or before the thirty-first day of May in each year deliver to the Minister a return in such form as the Minister may prescribe of any total income during the last preceding year.

The Minister here means the Provincial Treasurer.

"Person" is defined in the Act, s. 2 (8):

An individual, and includes a guardian, trustee, executor, administrator, agent, receiver or any other individual, firm or corporation, acting in a fiduciary capacity, and the heirs, executors, administrators, successors and assigns of such person.

For the purpose of the Act, "Income" is defined:

The annual net profit or gain or gratuity, whether ascertained and capable of computation as being wages, salary or other fixed amount, or unascertained as being fees or emoluments, or as being profits from a trade or commercial or financial or other business or calling, directly or indirectly received by a person from any office or employment, or from any profession or calling, or from any trade, manufacture or business, as the case may be, whether derived from sources within Saskatchewan or elsewhere; and includes the interest, dividends or profits directly or indirectly received from money at interest upon any security or without security, or from stocks, or from any other investment, and whether such gains or profits are divided or distributed or not, and also the annual profit or gain from any other source [sec. 3].

It is stated that "any other source" includes:

(a) the income from, but not the value of, property acquired by gift, bequest, devise or descent; and

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(b) the income from but not the proceeds of life insurance policies * * *

(c) the salaries, indemnities or other remuneration of all persons whatsoever, whether the said salaries, indemnities or remuneration are paid out of the revenue of His Majesty in respect of his Government of Canada, or of any province thereof, or by any person, except as herein otherwise provided," and

(d) all other gains or profits of any kind derived from any source within or without the province whether received in money or its equivalent.

The Act then provides (sec. 4) for certain exemptions and deductions, of which only subs, (m) need be quoted:

(m) profits earned by a corporation or joint stock company, other than a personal corporation, in that part of its business carried on at a branch or agency outside of Saskatchewan.

It should merely be mentioned that the appellant is not a "personal corporation" within the definition of the Act (s. 2, subs. 9).

The liability to tax is imposed upon corporations and joint stock companies, no matter how created or organized, carrying on business within the province, at the rate applicable thereto set forth in the first schedule of the Act, upon income during the preceding year exceeding one thousand dollars (s. 7, subs. 3).

After examination of the taxpayer's return, already referred to and provided for by sec. 29, the Minister must send a notice of assessment to the taxpayer verifying or altering the amount of the tax as estimated by him in his return; and any additional tax found due over the amount already paid by the taxpayer in accordance with sec. 44 (which provides for the payment of not less than one-quarter of the amount of the tax at the time when the return of the income is made) must then be paid within one month from the date of the mailing of the notice of assessment (s. 51).

The Act then authorizes an appeal to the Minister by any person, corporation or joint stock company who or which objects to the amount at which he or it is assessed, or considers that he or it is not liable to taxation (sec. 53).

Upon receipt of the notice of appeal, the Minister considers the same and is empowered to affirm or amend the assessment appealed against.

An appeal lies from the decision of the Minister to a Judge of the Court of King's Bench (s. 54).

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At the hearing of the appeal, the Judge hears and considers the cause upon the material filed by the Minister, and upon any further evidence which the appellant or the Crown may produce at the discretion of the Judge. The Judge may affirm, amend or disallow the assessment and it is enacted that "his decision shall be final in all matters relating to the appeal, and there shall be no appeal therefrom."

By an Act to amend the Act of 1932 (which came into force on April 7th, 1934) "person" was declared to include "any body corporate and politic and any association or other body, and the heirs, * * *." (subs. 2 of s. 2 of ch. 5 of the Statutes of 1934).

The administration of the Act and the control and the management of the collection of the taxes imposed thereby was entrusted to the Provincial Treasurer (s. 61); but it was provided that the Minister could authorize the Commissioner of Income Tax, appointed pursuant to the provisions of the Act, to exercise such of the powers conferred by the Act upon the Minister as may, in the opinion of the Minister, be conveniently exercised by the Commissioner (s. 61 (2)).

In 1935 (c. 16 of the Statutes of 1934-1935), the Act of 1932 was amended by providing for an appeal to the Board of Revenue Commissioners in lieu of the appeal to the Minister, and by striking out the word "Minister" wherever it occurred in matters relating to the appeal and substituting for it the word "Board."

Then the Income Tax Act, 1936, came into force on April 1st of that year (c. 15 of the Statutes of 1936). The scheme of this new Act is practically the same as that of the Act of 1932, including the amendments already mentioned, but with some differences which will be mentioned shortly.

On the 28th May, 1935, the appellant filed with the Commissioner of Income Tax its return of income for the taxation year 1934.

On the 2nd day of June, 1936, the appellant filed its return for the year 1935.

On the 26th of May, 1937, the appellant filed its return of income for the period of ten months ending the 31st October, 1936.

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Prior to assessing the appellant's income for the years 1934, 1935 and 1936, the Commissioner of Income Tax asked for certain information from the appellant. The appellant gave the information on the 6th day of June, 1938. The Commissioner asked for further information, which was given on the 8th of July, 1938.

The Commissioner did not request any further information, nor did the appellant supply any.

On the 23rd August, 1938, the Commissioner made an assessment in the sum of $4,382.07 in respect of the income of the appellant for the taxation year 1934, an assessment in the sum of $11,341.07 in respect of the income of the appellant for the taxation year 1935, and an assessment in the sum of $10,136.60 in respect of the income for the period of ten months ending on the 31st October, 1936.

There was an appeal to the Board of Revenue Commissioners in respect of the assessment for each of the years 1934, 1935 and 1936.

The Board dismissed the three appeals and affirmed the three assessments.

Again there was an appeal from the Board to a King's Bench judge. The latter (Anderson J.) again dismissed the three appeals and confirmed the decision of the Board of Revenue Commissioners.

The matter was then carried to the Court of Appeal of Saskatchewan, which adjudged that there was no right of appeal from the decision of the judge in chambers in respect of the assessment for the taxation year 1934. The appeal in regard to it was accordingly dismissed on the ground that the Court of Appeal had no jurisdiction to entertain the same.

The Court adjudged, however, that it had jurisdiction to entertain the appeals against the assessments for the taxation years 1935 and 1936. It held that they were defective in that they did not make provision for the appellant being allowed any deduction in respect of a reserve for bad debts. It ordered, therefore, that the said assessments be set aside; that the Commissioner, in making new assessments for the years 1935 and 1936, should reconsider the question of a reserve for bad debts in the light of the reasons for judgment of that Court and should exercise the discretion vested in him by s. 6 (d) of the Income Tax Act, 1936, upon sound principles.

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By special leave of the Court of Appeal for Saskatchewan, the Company now appeals from the judgment of that Court

except that part of the said judgment or order setting aside the said assessments for the taxation years 1935 and 1936 because they are defective in so far as a reserve for bad debts is concerned, as ordered in clauses 2 and 3 of the formal judgment, the part of the judgment or order of the Court of Appeal appealed from being clause 1 of the formal judgment or order of this Court and the judgment or decision of this Court that on all other grounds, except with respect to the deduction in respect of a reserve for bad debts, the appellant's appeals fail and including the disallowance by this Court of one-third of the appellant's costs of its appeals to this Court and a Judge of the Court of King's Bench.

The first point to be considered is whether, as the Court of Appeal has decided, there was a right of appeal to it with respect to the taxation years 1935 and 1936; and the second point is whether there also existed a right of appeal to that Court in respect of the taxation year 1934. As pointed out in the Court of Appeal, these questions of its jurisdiction are not without difficulty. The numerous amendments to the Acts of 1932 and 1936 are not clear and are not made clearer by the introduction of certain other provisions in the successive Treasury Department Acts (c. 6 of the Statutes of 1934-1935; c. 8 of the Statutes of 1938; c. 5 of the Statutes of 1939, and c. 5 and c. 6 of the Statutes of 1940).

It has already been mentioned that, under the scheme of the Act of 1932, there was a right of appeal to the Minister from the assessment originally made upon the return of a person liable to taxation under the Act; and a further right of appeal from the decision of the Minister to a Judge of the Court of King's Bench, who could affirm, amend, or disallow the assessment and whose decision was declared to be final in all matters relating to the appeal and from whom it was enacted that "there shall be no appeal" (s. 54(5)).

We have also seen that in 1935, for purposes of appeal under s. 53 of the 1932 Act, the Board of Revenue Commissioners was substituted to the Minister.

This Board had been created by An Act to amend The Treasury Department Act (c. 6 of the Statutes of 1934-35, assented to February 21st, 1935).

[Page 341]

By sec. 2 of the Act to amend The Treasury Department Act, the Lieutenant-Governor in Council was given the authority to appoint a Board of Revenue Commissioners consisting of three members, with power to hear appeals respecting the payment of taxes or other moneys due to the Crown; and its decisions thereon were declared to be final and not subject to further appeals, unless otherwise provided for in any revenue Act.

It is common ground that the taxes respecting which the Board was given power to hear appeals would include taxes levied under the Income Tax Act of 1932 or 1936. It was further conceded that the words "in any revenue Act" would include the Income Tax Act.

After the creation in 1935, as above mentioned, of the Board of Revenue Commissioners, there came into force the new Income Tax Act of 1936, which provided for returns to the Commissioner to be made by every person liable to taxation under the Act, for an assessment to be made by the Commissioner after examination of the return made by the taxpayer, and for an appeal to the Board of Revenue Commissioners, apointed under the provisions of The Treasury Department Act, by any person who objected to the amount at which he was assessed or who considered that he was not liable to taxation.

The 1936 Income Tax Act empowered the Board to duly consider the appeal and to affirm or amend the assessment appealed against (s. 57). An appeal was provided from the decision of the Board to a Judge of the Court of King's Bench (s. 58); and the Act of 1936, as it stood at first, empowered the Judge to affirm, amend or disallow the assessment; but it enacted that his decision should be final in all matters relating to the appeal and that there should be no appeal therefrom.

However, in 1937, the Income Tax Act, 1936, was amended by c. 8 of the Statutes of 1937, which came into force on April 16th of that year, and therein (s. 6) the Commissioner or any other interested person was given the right of appeal from the decision of the Judge to the Court of Appeal, as if such decision were a judgment in an action between subject and subject, with the proviso that there should be no further or other appeal.

Then in 1939 (c. 9 of the Statutes of 1939), it was further provided that the appeal from the decision of the

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Board and any further appeal should be subject to and governed by the provisions of secs. 41 and 42 of the Treasury Department Act, 1938 (s. 16 of c. 9 of the Statutes of 1939).

And if we now turn to sections 41 and 42 of the Treasury Department Act, 1938, referred to in sec. 16 of the statute just mentioned, we find that, under those sections 41 and 42, an appeal shall lie to a Judge of the Court of King's Bench from a decision of the Board on a question of law arising in an appeal to it under clause (a) of subsec. 8 of sec. 40 (N.B.: Clause (a) of subs. 8 of s. 40 empowers the Board to hear appeals respecting the payment of taxes or other moneys due to the Crown). As for s. 42 of the Treasury Department Act, 1938, it enacts that the Provincial Tax Commission, with the consent of the Attorney-General, or any other interested person may appeal from the decision of the Judge to the Court of Appeal as if such decision were a judgment between subject and subject, but that there shall be no further or other appeal.

And again, in 1940, by An Act to amend The Treasury Department Act, 1938 (No. 1), being c. 5 of the Statutes of 1940, it was provided that the appeal from the decision of the Judge may be made

in the same manner as an appeal may foe taken in any action or cause in the Court of King's Bench to which His Majesty is a party, and the practice and procedure relating to appeals shall apply to such appeal, provided that where an appeal has been taken to the Court of Appeal there shall be no further or other appeal except in cases Where the constitutional validity of any statute of the province or regulations made thereunder is brought into question.

And it was further provided that the right of appeal already given by the Treasury Department Act of 1938 (c. 8 of the Statutes of 1938, secs. 41 and 42) shall not apply

where provision is made by any revenue Act for an appeal from the decision of the Board differing in character from the appeal herein provided for

(Sec. 3 of c. 5 of (he Statutes of 1940). And it was enacted that, upon an appeal to a judge of the Court of King's Bench, the proceedings would thereupon become a cause in that court,

[Page 343]

provided that in all cases the facts shall be regarded as having been conclusively established by the findings of the Board except where a question is raised on the appeal that the finding of any particular fact or facts has been made by the Board upon evidence which does not warrant such finding.

The same chapter 5 of the Statutes of 1940 (s. 4 (2)) finally enacts that the sections which provide that the proceeding shall become a cause

shall be applicable to any judgment of the Court of Appeal delivered subsequently to the coming into force of this Act notwithstanding that the appeal to that Court was taken and heard prior hereto.

A further amendment must be mentioned to the Treasury Department Act, 1938. That amendment was introduced by chapter 6 of the Statutes of 1940, assented to on March 16th of that year. It provides that upon the appeal to a Judge of the Court of King's Bench, the latter may refer the matter of assessment back to the Provincial Tax Commission for further consideration; and likewise the Court of Appeal, upon an appeal to it, may refer the matter of assessment back to the Provincial Tax Commission for further consideration; and the Act "shall be read and construed as if the foregoing amendments had always been included therein."

On this extremely complicated legislation the Court of Appeal held they had no jurisdiction to entertain the appeal from the assessment with respect to the income for 1934 but that it was competent to hear and decide the appeals from the assessments with respect to the income for 1935 and 1936. I do not repeat the reasons of the learned Chief Justice of Saskatchewan (concurred in by MacKenzie and Gordon JJ. A.) for maintaining the jurisdiction of the Court of Appeal respecting the assessments for 1935 and 1936; they are expressed to my satisfaction and I have nothing to add to them. As for the assessment for 1934, the following observations lead me to the conclusion that an appeal with respect to it could equally be brought before the Court of Appeal.

When the appellant was called upon to deliver his return for the taxation year 1934, the Act of 1932 applied both to the income showed in that return and to the assessment thereafter to be made upon such income. As the law then stood, the Board of Revenue Commissioners, appointed under the provisions of the Treasury Department

[Page 344]

Act (as amended by c. 6 of the Statutes of 1934-5, assented to February 21st, 1935), had been created a few months before. The right of appeal provided for by s. 53 of the Act of 1932, which had heretofore to be brought before the Provincial Treasurer, had been transferred to the Board empowered to "hear appeals respecting the

payment of taxes or other moneys due to the Crown" (s. 20 (a) of the Treasury Department Act as amended by c. 6 of the Statutes of 1934-1935). Admittedly, that would include taxes upon income. It was, however, enacted in the Treasury Department Act that the decision of the Board "shall be final and not subject to further appeal unless otherwise provided for in any revenue Act." In view of such proviso, the appeal to a Judge of the Court of King's Bench (s. 54 of the Act of 1932) was preserved under the Income Tax Act, 1932, it being a "revenue Act." And as the legislation then stood, the Judge of the Court of King's Bench could affirm, amend or disallow the assessment; and his decision was to be final in all matters relating to the appeal; and there could be no appeal therefrom (subs. 5 of s. 54 of the Act of 1932).

However, the assessment on the return made by the appellant for 1934 was completed and notified to the taxpayer only on the 23rd August, 1938. In the meantime, the legislation relating to appeals in such matters had undergone a very important change. In most instances, the Commissioner of Income Tax had replaced the Provincial Treasurer for the purposes of the administration of the Act, and the Board of Revenue Commissioners had been substituted to the Minister in several other instances, more particularly with regard to appeals.

By the Treasury Department Act, 1938 (ch. 8 of the Statutes of 1938, assented to March 23rd, 1938), new provisions with regard to appeals had been introduced in the Saskatchewan legislation "respecting the payment of taxes or other moneys due to the Crown" (subs. 8 (a) of s. 40 of the Treasury Department Act, 1938). Under these new provisions, a right of appeal was provided first to "a Judge of the Court of King's Bench from the decision of the Board on a question of law arising in an appeal to it" (s. 41 (1)); and a further appeal was authorized "from the decision of the Judge to the Court of Appeal

[Page 345]

as if such decision was a judgment in an action between subject and subject, but there shall be no further or other appeal" (s. 42).

Moreover, the Income Tax Act, 1936, had come into force and therein was provided a right of appeal from the assessment, 1°, to "the Board of Revenue Commissioners appointed under the provisions of The Treasury Department Act" (s. 57); 2°, to a Judge of the Court of King's Bench (s. 58); and 3°, to the Court of Appeal (s. 58a inserted by section 6 of c. 8 of the Statutes of 1937, assented to April 16th, 1937).

No doubt, on March 23rd, 1938, by the Statute Law Amendment Act (c. 91 of 1938), sections 58 and 58a of the Income Tax Act, 1936, were repealed; but on the same day the Treasury Department Act, 1938, was assented to and it provided, as we have seen above, for the appeal to a Judge of the Court of King's Bench and from the decision of that Judge to the Court of Appeal. The inference is reasonable and logical, to the point of it being obvious, that the reason for repealing secs. 58 and 58a of the Income Tax Act, 1936, was precisely because similar provisions, on the same day, came into force under sections 41 and 42 of the Treasury Department Act, 1938. This inference is strengthened by the insertion in the Income Tax Act, 1936, of a new sec. 58 reading as follows:

58. An appeal from a decision of the Board and any further appeal shall be subject to and governed by the provisions of sections 41 and 42 of The Treasury Department Act, 1938. [Sec. 16 of c. 9 of the Statutes of 1939].

In my view, it is apparent that, even prior to the date when the return of 1934 was due to be filed by the taxpayer, the legislature had set out a new machinery covering the whole question of appeals from assessments in taxation matters, including the income tax; and, in this case, there was, in fact, an appeal asserted to the Board of Revenue Commissioners which had been substituted to the Minister, without there being any objection forthcoming from either the Provincial Tax Commission or the Commissioner of Income Tax or the Provincial Treasurer, or the Attorney-General for Saskatchewan. Indeed, everybody appears to have taken for granted that the appeal from the assessment of 1934 had to be brought before the Board, instead of before the Minister. That it was so will

[Page 346]

be still more apparent if we are to take the statement made at bar before this Court that the only revenue Act in Saskatchewan providing for a right of appeal at all was the Income Tax Act.

Under those circumstances, it seems to me that from the moment the Board of Revenue Commissioners was created, the intention of the Legislature in the Treasury Department Act was to cover the whole field of appeals in taxation matters. Without it the legislation was incapable of proper operation.

The effect of the coming into force of the Treasury Department Act and its subsequent amendments was impliedly to repeal the provisions concerning appeals contained in the Income Tax Act which became inconsistent or repugnant. "The latest expression of the will of Parliament must always prevail" (Maxwell on the Interpretation of Statutes, 8th ed., p. 139; Craies on Statute Law, 4th ed., p. 310, and cases cited).

Of course, the respondent points to sections 73 and 74 of the Income Tax Act, 1936, whereby it is enacted that the Act of 1936

shall apply to incomes earned or received in the year 1935 and to incomes in respect of fiscal years ending subsequently to the thirty-first day of August, 1935.

and that

the following enactments are hereby repealed:

22 George V, 1932, c. 9;

23 George V, 1933, c. 9;

24 George V, 1934, c. 5;

25 George V, 1934-35, c. 16.

with the following proviso:

(2) Notwithstanding the repeal of the enactments mentioned in subsection (1), the said enactments shall continue to apply to incomes earned or received in the years 1931, 1932, 1933 and 1934 and to incomes in respect of fiscal years ending prior to the first day of September, 1935, to the same extent as if the said enactments had not been repealed.

But the answer to the respondent's objection is that, by the very terms of the proviso, the enactments of the Act of 1932 and its amendments continue to apply to incomes of 1934 only, of course, in so far as they were still in force previous to the repeal of the 1932 Act by the Act of 1936; and, as explained above, in matters of appeal, these enactments were no longer applicable because of the provisions inconsistent thereto contained in the Treasury Department Act.

[Page 347]

A further answer to the respondent's contention appears to be that, despite the repeal of the 1932 Act and amendments by the 1936 Act, the Act of 1932 continued to apply to incomes earned or received in the year 1934, that is to say, to incomes as such; but, for the purposes of assessment and of appeals therefrom the Act of 1936 would prevail. This is the more likely since, in the meantime, the scheme of assessment and of appeals had been changed and taken away from the Provincial Treasurer to the Commissioner and to the Board of Revenue Commissioners; and it should not be forgotten that, in this case, so far as the 1934 return is concerned, we are dealing with an assessment made only on the 23rd day of August, 1938, and "under the provisions of The Income Tax Act, 1936."

My conclusion, therefore, is that the appellant had a right of appeal to the Court of Appeal even from the assessment for the taxation year 1934. To that extent, the appeal from the judgment of the Court of Appeal should be allowed and that judgment varied accordingly.

The other points raised in this appeal concern the alleged errors in law in the judgment of the Court of Appeal with regard to the method of assessment adopted by the Commissioner of Income Tax and approved successively by the Board of Revenue Commissioners, by the Judge of the Court of King's Bench and by the Court of Appeal; and concern the manner in which the Court of Appeal disposed of the question pertaining to the "reserve for bad debts."

Dealing first with the method of assessment, the point comes up in this way. Under the Income Tax Act, 1932, regulations were issued

covering such cases where the Minister is unable to determine or obtain information required to ascertain the income within the province of a corporation or joint stock company carrying on a trade or business within and without the province.

These regulations provide as follows:

1. Interest, dividends, rents and royalties less their proportionate share of deduction allowed shall be separately determined or ascertained, and if they are received in connection with the trade or business of the taxpayer in the Province, shall be income liable to taxation.

2. The income referred to in regulation 1 having been separately determined and ascertained, the remainder of the income of the taxpayer liable to taxation shall be taken to be such percentage of the remainder of the income as the sales within the Province bear to the total sales.

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The sales of the taxpayer shall be measured by the gross amount which the taxpayer has received during the preceding year from sales and other sources in connection with the said business, excluding, however, receipts from the sale or exchange of capital, assets and property not sold in the regular course of business and also receipts from interest, dividends, rents and royalties the income of which has been separately determined or ascertained under the provisions of regulation 1.

***

4. If a taxpayer believes that the method of allocation and apportionment herein prescribed or as determined and as applied to his business, has operated or will so operate as to subject him to taxation on a greater portion of his income than is reasonably attributable to business or sources within the Province, he shall be entitled to file with the Commissioner a statement of his objections and of such alternative method of allocation and apportionment as he believes to be proper under the circumstances, with such details and proof and within such time as the Commissioner may reasonably prescribe, and if the Commissioner shall conclude that the method of allocation and apportionment heretofore employed is in fact not applicable or equitable, he shall re-determine the taxable income by such other method of allocation and apportionment as seems best calculated to assign to the Province for taxation the portion of the income reasonably attributable to business and sources within the Province.

5. These regulations shall not be applied to determine the income within the Province of a corporation or joint stock company carrying on a trade or business within and without the Province where

(a) the method or system of accounting used by the taxpayer enables the Commissioner to determine or to obtain the information required to ascertain the income of the taxpayer liable to taxation.

(b) the income of the taxpayer liable to taxation can be determined or ascertained by allowing the exemption provided by paragraph (m) of section 4 of the Income Tax Act, 1932.

It is conceded that, although these regulations were issued under the Act of 1932, they have continued in force and are applicable under the Act of 1936. Paragraph (m) of s. 4, referred to in the regulations, is to the effect that "profits earned by a corporation or joint stock company, other than a personal corporation, in that part of its business carried on at a branch or agency outside of Saskatchewan," shall not be considered as income liable to taxation under the Act.

The regulations were made pursuant to subsection 4 of section 7 of the Act of 1932 (a similar provision is contained in the Act of 1936, subsection 4 of section 9). These subsections, both in the Act of 1932 and in the Act of 1936, read as follows:

Where the minister is unable to determine or to obtain the information required to ascertain the income within the province of any corporation or joint stock company or of any class of corporations or joint

[Page 349]

stock companies, the Lieutenant-Governor in Council may, on the recommendation of the minister, make regulations for determining such income within the province or may fix or determine the tax to be paid by a corporation or joint stock company liable to taxation.

It was contended by the appellant that the regulations did not apply to the appellant's returns in the present case, because the Act apparently provides for a special regulation for the purpose of determining a special income in each particular case of persons or corporations liable to taxation; but the statute does not seem to be incapable of being construed as authorizing the Lieutenant-Governor in Council to make regulations, such as those we have before us, to apply in all cases "where the minister is unable to determine or to obtain the information required to ascertain the income."

Indeed it would seem that such construction is more reasonable and equitable because the effect would then be to put on an equal footing all cases where that situation obtains, instead of being limited to empowering the Lieutenant-Governor in Council to make for each case different regulations which might operate in a way to discriminate between the several taxpayers.

The regulations as made by the Lieutenant-Governor in Council, in the premises, avoid this possible objection and would appear, therefore, to be more within the purpose of the Act.

A further objection to the application of the regulations in this case was put forward by counsel for the appellant. He says that, both by virtue of the Act and of the regulations themselves, the latter may be applied only "where the Minister is unable to determine or to obtain the information required to ascertain the income within the province"; but it should be remembered that the right of appeal to this Court, as well as to the Court of Appeal, is strictly limited to "a question of law arising in the appeal." The question whether the proper method of fixing or determining the tax was adopted by the Commissioner, consistently with the Act and the regulations, is, no doubt, a question of law; but the question whether the condition precedent existed as a result of which resort could be had to the special method of allocation provided for by the Act and by the regulations, i.e., whether the Minister was "unable to determine or to obtain the

[Page 350]

information required to ascertain the income within the province," while it may be a decision strictly within the Minister's discretion, is, at all events, a pure question of fact with which this Court cannot concern itself.

It may be added that there was here almost superfluous evidence in support of the contention that the condition precedent existed. Such was the finding, not only of the Commissioner, but also of the Board of Revenue Commissioners, the Judge of the Court of King's Bench and the Court of Appeal. Had we had authority to entertain the objection, it would have been hopeless for the appellant to expect that this Court would interfere. In fact, in all its returns, the appellant itself resorted to the method of allocation and apportionment; and, in its return of 1935, it admitted that it was "necessary, therefore, to ascertain its net income in Saskatchewan by an allocation method."

This objection cannot seriously be envisaged.

But the appellant then contends that the effect of the regulations is to go beyond the powers conferred by the statute and that they are ultra vires and unconstitutional, because, first, they are not authorized in their present form by the Acts of 1932 or 1936; and, second, the result is to tax property outside of Saskatchewan and, as a consequence, to encroach upon the powers exclusively reserved to the Dominion Parliament under the B.N.A. Act.

In order to decide these two objections of the appellant it becomes necessary to return to a consideration of the statutes and regulations. The Acts specify that

The income liable to taxation under this Act of every person residing outside of Saskatchewan, who is carrying on business in Saskatchewan, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Saskatchewan.

The regulations limit their application to

Interest, dividends, rents and royalties * * * received in connection with the trade or business of the taxpayer in the Province,

and they stipulate that

the remainder of the income of the taxpayer liable to taxation shall be taken to be such percentage of the remainder of the income as the sales within the Province bear to the total sales,

thus indicating the intention to tax only the income arising from the business within the province.

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The same intention appears in Regulation No. 4, where it is stated that the method of allocation and apportionment therein prescribed is for the purpose of determining the income "reasonably attributable to business and sources within the Province."

Regulation No. 5 expressly states that "these regulations shall not be applied to determine the income within the Province of a corporation or joint stock company" where the method or system of accounting enables the Commissioner to obtain the information required to ascertain the income of the taxpayer liable to taxation or where the income of the taxpayer can be determined or ascertained by allowing the exemption provided by paragraph (m) of section 4 of the Act of 1932.

As we have already seen, that paragraph (m) exempts from taxation all "profits earned by a corporation or joint stock company * * * in that part of its business carried on at a branch or agency outside of Saskatchewan."

Accordingly, the aim of the 1932 and 1936 Acts, with respect to non-resident companies which carry on business in Saskatchewan, is to reach by taxation only the income arising from the business in the province. As a consequence, these Acts are well within sub-head 2 of section 92 of the B.N.A. Act (Bank of Toronto v. Lambe[7]).

By the Acts, the tax is upon income arising from the business in the province. In my humble opinion, the regulations do exactly the same thing. On this branch of the case, it should be pointed out that the amount to be taxed under the regulations is a percentage of the sales in Saskatchewan, and that percentage is identical with the ratio between the total profits and total sales. With respect, the amount so to be taxed does not necessarily exceed the amount of the net profit or gain arising from the business in Saskatchewan.

It was next argued that, even if the Acts are constitutional or the regulations are intra vires, yet in their operation in the present case they have the effect of taxing profits or gains which did not arise from the business of the appellant in Saskatchewan.

At the outset, the appellant is met by the difficulty that the question whether profits or gains arose within or without Saskatchewan is really a question of fact already

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decided against it by the Commissioner of Income Tax, the Board of Revenue Commissioners and the Judge of the Court of King's Bench. In an endeavour to transform that objection into a question of law, appellant's counsel stresses the point to the extent of saying that the application of the regulations necessarily includes in the assessment manufacturing profits said to have arisen exclusively outside Saskatchewan, i.e., at the head office of the appellant in Hamilton, Ontario, where the central management and control of the appellant abide (De Beers Consolidated Mines v. Howe[8]; Commissioners of Taxation v. Kirk[9]).

Such, in my view, was not the purpose of the Acts of Saskatchewan or of the regulations made thereunder and applied in the present case. The Commissioner, in making each assessment, intended to tax exclusively the profits and gains arising from the business of the appellant in Saskatchewan. Neither the Commissioner of Income Tax nor the Board of Revenue Commissioners meant to reach anything but the profits or gains arising from the business of the appellant in Saskatchewan; and the method adopted by them to obtain that object—a method which was rendered necessary as a result of the fact that the appellant does not keep separate profit and loss accounts for the business it carries on in the Province of Saskatchewan, but keeps at its head office in Hamilton an account of its entire net profit and loss account for the business it carries on in Saskatchewan and elsewhere—was nothing else than the adoption of the best available means to ascertain the income of the appellant arising from its business in Saskatchewan, and nothing more.

The appellant should be reminded of the words of Lord Shaw in the House of Lords in Attorney-General v. Till[10]:

Such powers are inserted in the Act simply because, in addition to all kinds of penalties, the Board of Inland Revenue must ingather taxation; and if the taxpayer will not furnish the information himself, some means must be provided of recovering the duty, and these powers are given to enable the Board to proceed with the best available estimate.

The appellant referred the Court to a great number of decisions on several statutes which may or may not, upon close examination, be found to contain provisions

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similar to the Acts of 1932 and 1936. The fallacy of attempting to apply these decisions to the present case is stated by Lord Davey, delivering the judgment of the Privy Council, in Commissioners of Taxation v. Kirk[11], and it is that these other Acts "in language, and to some extent in aim, differ from the Acts now before" this Court. As already pointed out, the appellant itself was driven to the admission that its exact and precise income arising from its business in Saskatchewan could not be ascertained, owing to its method of book-keeping and of keeping its profit and loss account. Under the circumstances, it was clearly necessary that the method of allocation and apportionment prescribed by the regulations should be resorted to by the Commissioner of Income Tax. It was the only method available to ascertain the income liable to taxation; and, like the Board of Revenue Commissioners and the other judges who have already passed upon this case, I think the appellant cannot complain.

There remains to discuss the point about bad debts.

In the order granting special leave to appeal to this Court, leave was granted to the appellant on all grounds decided by the Court of Appeal for Saskatchewan,

except that part of the said judgment or order setting aside the said assessments for the taxation years 1935 and 1936 because they are defective in so far as a reserve for bad debts is concerned, as ordered in clauses 2 and 3 of the formal judgment.

It follows that, of course, so far as the appellant was concerned, the decision of the Court of Appeal on this question in respect of the taxation years 1935 and 1936 was not open before this Court. Indeed, the appellant had no interest in getting leave to appeal from that part of the decision, since it had been rendered favourably to its contention. The question of the reserve for bad debts in the assessment for the taxation year 1934 (not decided by the Court of Appeal on account of its holding that it had no jurisdiction in respect of that particular year) was properly before this Court under the order granting special leave.

The legal points concerning that question are exactly the same as those discussed by the Court of Appeal with regard to the assessments of 1935 and 1936; and, therefore,

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this Court had to hear argument which, although confined in its effect to the 1934 assessment revenue, embraced exactly the same legal points as applied to the assessments for 1935 and 1936 decided by the Court of Appeal.

Dealing with such reserve for bad debts, the law of Saskatchewan is as follows (s. 6 (d) of the Acts of 1932 and of 1936):

In computing the amount of the profits or gains to foe assessed, a deduction shall not foe allowed in respect of:

***

(d) amounts transferred or credited to a reserve, contingent account or sinking fund, except such an amount for bad debts as the Commissioner may allow and except as otherwise provided in this Act.

As will be seen, the matter is, therefore, left somewhat to the discretion of the Commissioner "except as otherwise provided in this Act"; but, of course, the discretion must be exercised within legal grounds.

It was not suggested on either side that it was "otherwise provided in this Act," so far, at least, as this case is concerned.

By virtue of the second paragraph of regulation No. 2 "the sales of the taxpayer shall be measured by the gross amount which the taxpayer has received during the preceding year from sales." If taken by themselves, these words might be construed to mean "money received," but these regulations cover cases where the Minister is unable to determine or obtain information required to ascertain the income, within the province, of a corporation carrying on business within and without the province; and the income under section 23 is "the net profit or gain arising from the business * * * in Saskatchewan." The appellant company, following the well-established practice, included in its statement not only money received but also receivables such as notes, book debts, etc The Commissioner dealt with the present case upon that basis, and, therefore, what is to be compared under the regulations is the sales within the province with the total sales. They are to be measured by the contract prices in the year of charge, less that part thereof as has been shown to be uncollectable in that year and less an allowance for such other part that might turn out to be bad in the future.

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The result is that, in estimating the amount to be allowed for bad debts, the Commissioner must, first: allow for debts actually proven to have lost part or all of their original value; second: allow a reserve for losses which may eventually occur; but in the latter case he is bound by the provisions of sec. 6 (d) of the Act.

The taxpayer may deduct the amount of any debt found to have been bad in the year in which it is incurred; and, in addition, he may set aside from his profits whatever the Commissioner allows for the reserve.

In this instance, the Commissioner has allowed for all debts allegedly bad since the year 1931 and the following years; but he has allowed no provision for the reserve.

As pointed out by the Chief Justice of Saskatchewan, the allowance may be reasonable, but it is not warranted by law. In effect, it re-opens assessments for each year since 1931; and it operates practically as a refund, which is not authorized by the Income Tax Acts.

It is clear that the Commissioner should have allowed a reserve. He did not do so because of his interpretation of the law that he could provide for debts turning out to be bad in years subsequent to that of their being incurred. The statutes, however, did not allow him to do that.

For that reason, the assessments of 1935 and 1936 were found defective by the Court of Appeal and they were returned back to the Commissioner to exercise his discretion for the allowance of a reserve under sec. 6 (d) of the Act, "upon sound principles."

Although, no doubt, the matter was left to the discretion of the Commissioner, in so doing the Commissioner was performing a duty of a quasi-judicial character, and the discretion had to be exercised on proper legal principles. (Pioneer Laundry & Dry Cleaners Ltd. v. Minister of National Revenue[12]).

The conclusion come to by the Court of Appeal, upon which their decision on that point was reached, and which was fully warranted by the evidence, was that the Commissioner did not apply his mind to this question in conformity with the law applicable thereto.

No satisfactory reason was put before this Court by the respondent as to why the grounds upon which this

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matter was decided by the Court of Appeal for the years 1935 and 1936 should not equally apply to the assessment made for the year 1934.

As a consequence, the appeal should be allowed. The assessment for the year 1934 should be set aside and referred back to the Commissioner for the same purpose as the assessments for 1935 and 1936 have already been referred back by the Court of Appeal. I say nothing as to the right of the respondent to cross-appeal because, in any event, that cross-appeal fails.

The appellant succeeds to the extent of securing the same order with respect to the assessment for 1934 as it had with respect to the assessments for 1935 and 1936. Under the circumstances and without disturbing the allocation of costs already made in the Court below, the appellant shall have one-half of its costs of the appeal to this Court, and the cross-appeal should be dismissed with costs.

Hudson J.—This appeal concerns assessments of the appellant company in respect of income taxes imposed by the Province of Saskatchewan for the years 1934, 1935 and 1936. The statute applicable to the assessments for 1934 was a statute passed in 1932, and in respect of 1935 and 1936 a new Act passed in 1936, but, as the provisions of these two Acts, to which I wish to refer, are identical, for convenience I shall quote only the sections of the 1936 Act. That statute is chapter 15 of the Statutes of Saskatchewan. The charging section is section 9, of which subsections 3 and 4 must first be considered in this case. They are as follows:

9. (3) Save as herein otherwise provided, every corporation and joint stock company, no matter how created or organized, residing or ordinarily resident or carrying on business within the province, shall pay a tax, at the rate applicable thereto set forth in the first schedule to this Act, upon its income during the preceding year.

(4) Where the commissioner is unable to determine or to obtain the information required to ascertain the income within the province of any corporation or joint stock company or of any class of corporations or joint stock companies, the Lieutenant-Governor in Council may, on the recommendation of the commissioner, make regulations for determining such income within the province or may fix or determine the tax to be paid by a corporation or joint stock company liable to taxation. 1932, c. 9, s. 7; 1934-35, c. 16, ss. 6 and 12; amended.

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These provisions must be read with section 23 of the Act which provides:

The income liable to taxation under this Act of every person residing outside of Saskatchewan, who is carrying on business in Saskatchewan, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Saskatchewan. 1932, c. 9, s. 21a.

Under a provision in the 1932 Act, corresponding to subsection 4 of section 9, the Lieutenant-Governor in Council passed regulations to provide for determining income as prescribed. These regulations continued in force under the Act of 1936 by virtue of section 40 of the Interpretation Act, chapter 1, R.S.S., 1930, which is as follows:

Whenever an Act is repealed wholly or in part and other provisions are substituted, all by-laws, orders, regulations and rules made under the repealed Act shall continue good and valid in so far as they are not inconsistent with the substituted Act, enactment or provision until they are annulled or others made in their stead.

The regulations are as follows:

1. Interest, dividends, rents and royalties less their proportionate share of deductions allowed shall be separately determined or ascertained, and if they are received in connection with the trade or business of the taxpayer in the Province, shall be income liable to taxation.

2. The income referred to in regulation 1 having been separately determined and ascertained, the remainder of the income of the taxpayer liable to taxation shall be taken to be such percentage of the remainder of the income as the sales within the Province bear to the total sales.

The sales of the taxpayer shall be measured by the gross amount which the taxpayer has received during the preceding year from sales and other sources in connection with the said business, excluding, however, receipts from the sale or exchange of capital, assets and property not sold in the regular course of business and also receipts from interest, dividends, rents and royalties the income of which has been separately determined or ascertained under the provisions of regulation 1.

3. If for any reason the portion of income attributable to business within the Province cannot be determined under the provisions of regulation 2, the income referred to in regulation 1 shall first be separately ascertained or determined and for the purpose of ascertaining or determining the proportion of the remainder of the income of the taxpayer, such remainder of income shall be specifically allocated or apportioned within and without the Province by the Commissioner.

4. If a taxpayer believes that the method of allocation and apportionment herein prescribed or as determined land as applied to his business, has operated or will so operate as to subject him to taxation on a greater portion of his income than is reasonably attributable to business or sources within the Province, he shall be entitled to file with the Commissioner

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a statement of his objections and of such alternative method of allocation and apportionment as he believes to be proper under the circumstances, with such details and proof and within such time as the Commissioner may reasonably prescribe, and if the Commissioner shall conclude that the method of allocation and apportionment heretofore employed is in fact not applicable or equitable, he shall re-determine the taxable income by such other method of allocation and apportionment as seems best calculated to assign to the Province for taxation the portion of the income reasonably attributable to business and sources within the Province.

5. These regulations shall not be applied to determine the income* within the Province of a corporation or joint stock company carrying on a trade or business within and without the Province where

(a) the method or system of accounting used by the taxpayer enables the Commissioner to determine or to obtain the information required to ascertain the income of the taxpayer liable to taxation.

(b) the income of the taxpayer liable to taxation can be determined or ascertained by allowing the exemption provided by paragraph (m) of section 4 of the Income Tax Act, 1932:

The Commissioner in making his assessments applied Regulations 1, 2 and 3.

The appellant company did not take advantage of the provisions of Regulation No. 4 and, instead, appealed to the Board of Revenue Commissioners, a body created under the authority of the Treasury Department Act, as amended by chapter 6 of 1934-1935. Under this statute the Board was given power to hear appeals respecting the payment of taxes or other moneys due to the Crown and "its decisions thereon shall be final and not subject to further appeal unless otherwise provided for in any revenue Act." The Board had power to adjudicate on facts as well as on law.

On the hearing before the Board, the appellants presented an alternative method of allocation of income and in support of their case, evidence was adduced and heard by the Board. In a very fully considered judgment the Board confirmed the assessments made by the Commissioner of Income Tax.

There was no claim put forward for deduction on account of payment to another province, as provided for in section 7 of the Act which reads:

7. (1) A taxpayer shall be entitled to deduct from the amount of tax which would otherwise be payable under this Act, the amount paid to any other province for income tax in respect of the income of the taxpayer derived from sources therein, if such province allows a similar credit to persons in receipt of income derived from sources within Saskatchewan.

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(2) The deduction shall not at any time exceed the amount of tax which would otherwise be payable under this Act in respect of the said income derived from sources within such other province.

(3) A deduction shall be allowed only if the taxpayer furnishes evidence, satisfactory to the commissioner, showing the amount of tax paid and the particulars of income derived from sources within that province. 1933, c. 9, s. 4; 1934-35, c. 16, s. 12.

It should be said, however, that it does not appear whether in this case such a claim was available.

On a further appeal to Mr. Justice Anderson, who had jurisdiction to consider facts as well as law, the appellants' appeal was again dismissed. And on a further appeal to the Court of Appeal for Saskatchewan, which court had jurisdiction only in questions of law and not of fact, the appellants' appeal was again dismissed on this question, although allowed in respect of an allowance for bad debts.

Before this Court a question was raised as to the power of the Legislature to pass the Income Tax Act, particularly section 9 (4). The contention of counsel for the appellants, as I understood it, was that if subsection 4 was so construed as to authorize the inclusion in the amount assumed to be earnings of a particular sum which might be considered as an external earning, then the subsection was invalid.

There can be no doubt about the power of the Legislature to impose a tax on a company found doing business within the Province. That was settled in the case of Bank of Toronto v. Lambe[13], and I think it follows that the Legislature in settling the income tax may adopt any yardstick which they may deem suitable, providing, of course, the tax is being levied "in order to the raising of a revenue for provincial purposes" and not done to achieve any ulterior purpose beyond the proper legislative jurisdiction of the Province: see Bank of Toronto v. Lambe13 (supra), and Attorney-General for Alberta v. Attorney-General for Canada[14], referring particularly to the judgment dealing with the taxation of banks.

Next it was argued that the regulations are ultra vires of the Lieutenant-Governor in Council.

Under section 9 (4) the regulations apply only when the Commissioner is unable to determine or obtain the information required to ascertain the income within the

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Province. Therefore, the amount to be fixed under subsection 4 must normally be an assumed amount, to take the place of a figure which it is impossible to ascertain. For the purpose of fixing this assumed or estimated amount, the Lieutenant-Governor in Council is authorized to make regulations or to themselves fix or determine the tax.

The regulations first provide a general formula which would, no doubt, apply without objection to a very large number of cases but, recognizing that it might work hardship in some cases, provision was made in Regulation 4, enabling the taxpayer to present his objections and any alternative method of allocation or apportionment which he believes to be proper under the circumstances. The Commissioner then has the right to determine the taxable income as seems best calculated to assign to the Province for taxation the portion of the income reasonably attributable to business and sources within the Province.

After much consideration, I cannot say that these regulations exceed the power vested in the Lieutenant-Governor in Council under the authority of subsection 4. They seem to me to be generally well calculated to work out equitably the intention of the Legislature. The making of the estimate is not a purely arbitrary act on the part of an official but is open to review by an independent Board and by a Judge of the Court of King's Bench. Procedure somewhat similar to this is found in other jurisdictions, for example, in England: Halsbury's Laws of England, 2nd Edition, vol. 17, page 174:

360. Where the true profits of a non-resident person chargeable to tax in the name of a resident person cannot be readily ascertained, the Commissioners may charge the non-resident person on a percentage of the turnover of the business done by the non-resident person through or with the resident person.

The percentage is determined, having regard to the nature of the business, by the Commissioners by whom the assessment is made, subject, where the assessment is made by the additional Commissioners, to appeal to the General or Special Commissioners, and subject to the right of the resident or non-resident to require the question to be referred to the Board of Referees, whose decision is final.

It is further to be noted that the mode of allocation included in the regulations was not new. It had been in force in Saskatchewan for a number of years prior to the assessments in question and prior to the Income Tax Act of 1936. Moreover, it also appears from the statement

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of the Board of Revenue Commissioners that the appellants themselves in previous years had adopted the mode of allocation prescribed by the regulations.

The position of the Board, as I understand it, is this: "We have investigated the business giving rise to these assessments, we have heard the appellants' evidence, we have considered their own proposed method of allocation and we cannot find that such method would produce a result more reliable than the formula prescribed by the regulations. Under all the circumstances, we doubt if it is possible for anybody to frame a better formula."

On appeal, Mr. Justice Anderson, who also had jurisdiction to deal with facts, agreed with the Board.

Now it is claimed that the mode of allocation prescribed in the regulations, in its application to the assessments here, fails to take into account manufacturing profits which may have been earned by the appellants outside of Saskatchewan. This claim was made before the Board and, although it does not seem to have received as much consideration there as it did before us, it was considered by them. Apparently the Board thought that, while it was a factor to be considered, it formed only one of a group of imponderables, incapable of separate evaluation with any degree of certitude.

The question then is whether we, a tribunal having jurisdiction only to decide on questions of law, would be justified in setting aside the assessments. I do not think that this should be done unless we can say that no assessment under subsection 4 of section 9 is valid, if it can be shown that in any degree earnings outside of Saskatchewan may have been included in the estimate of the total figure deemed to be earnings within the Province. I am not prepared to go that far.

If it could be said that the Commissioner and the Board and Mr. Justice Anderson had misconstrued the statute or the regulations, or failed to direct their minds to the questions involved, then the Court would be justified in sending it back for reconsideration. We have no information as to what was considered by the Commissioner, but the judgment of the Board of Revenue Commissioners indicates that the members of that body gave some consideration to all of the arguments and have not necessarily misconstrued either the statute or the regulations.

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On the other points involved in this appeal, I agree with the conclusions of my brother Rinfret and also with the disposition of the appeal which is proposed by him.

Appeal allowed in part, with one-half costs of appeal. Cross-appeal dismissed with costs.

Solicitors for the appellant: Thorn, Bastedo, Ward & McDougall.

Solicitor for the respondents: Alex. Blackwood.