Minister of National Revenue v. Panko, [1972] SCR 319

Supreme Court of Canada

Minister of National Revenue v. Panko, [1972] S.C.R. 319

Date: 1971-06-28

The Minister of National Revenue Appellant;

and

William Panko Respondent.

1971: June 8; 1971: June 28.

Present: Abbott, Judson, Ritchie, Pigeon and Laskin JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA

Taxation—Income tax—Tax evasion—Plea of guilty—Taxpayer fined—Right of Minister to impose penalty in addition to the fines—Income Tax Act, R.S.C. 1952, c. 148, ss. 56, 132, as amended.

The respondent failed to report certain income in each of the years 1960 to 1965. He pleaded guilty to six charges under s. 132(1)(a) of the Income Tax Act and one charge under s. 132(1)(d). Fines totalling $25,000 were levied against him. Thereafter, the Minister gave notices of reassessment and at the same time assessed penalties for each of the six taxation years pursuant to s. 56(2) of the Act. The respondent objected to the inclusion of the penalties, relying on s. 132(3) of the Act. Both the Tax Appeal Board and the Exchequer Court found against the Minister. The latter appealed to this Court and the sole question is whether the Minister had authority to assess a penalty pursuant to s. 56(2) of the Act at the time subsequent to the laying of the informations.

Held (Pigeon and Laskin JJ. dissenting): The Minister’s appeal should be allowed.

Per Abbott, Judson and Ritchie JJ.: No ambiguity could be found in the law as amended in

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1960. The penalties in issue here were assessed under s. 56(2) and were not subject to the condition provided for in s. 132(3). The plain terms of s. 132(3), which limits the need for prior assessment of a penalty to s. 56(1), do not create “an absurdity in the law” or make necessary an inference that the section must be applied not only to an assessment under s. 56(1) but also to one under s. 56(2).

Per Pigeon and Laskin JJ., dissenting: It would be unthinkable for the Minister to urge that although he has prosecuted under s. 132(1)(d) without previously assessing a penalty under s. 56(1), he may recede from his election and also treat the conduct as falling within s. 56(2) for penalty purposes. The proscribed conduct having been brought under s. 56(1) by reason of the conviction under s. 132(1)(d), there was no right, by reason of s. 132(3), to impose a penalty in addition to the fines.

APPEAL from a judgment of Kerr J. of the Exchequer Court of Canada[1], in an income tax matter. Appeal allowed, Pigeon and Laskin JJ. dissenting.

G.W. Ainslie, Q.C., and J.R. Powers, for the appellant.

J.J. Mahony, for the respondent.

The judgment of Abbott, Judson and Ritchie JJ. was delivered by

JUDSON J.—During each of the years 1960 to 1965 inclusive, the respondent, William Panko, suppressed income in the total amount of $165,801.70. For this offence he was prosecuted under s. 132 of the Income Tax Act. Two informations were laid, one information containing a charge for each of the years 1960 to 1965 inclusive for having violated s. 132(1)(a), and the other information contained one charge for having violated s. 132(1)(d) for the period March 23, 1961, to June 30, 1966. Panko pleaded guilty and was fined a total of $20,000 for the violations of s. 132(1)(a) and $5,000 under s. 132(1)(d). Section 132(1)(a) deals with false or deceptive

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statements in a return; section 132(1)(d) deals with wilful evasion.

After this, the Minister gave notices of reassessment, one for each of the years 1960 to 1965, and at the same time assessed penalties totalling $16,134.25. The sole question in this appeal is whether the Minister had authority to assess a penalty pursuant to s. 56(2) of the Income Tax Act at a time subsequent to the laying of the informations. Both the Tax Appeal Board and the Exchequer Court¹ have found against the Minister on this point.

It is necessary to begin with an examination of the interrelation of s. 56 of the Act and s. 132 as they stood before the 1960 amendments made by 8-9 Eliz. II, c. 43. Before the 1960 amendment there could be no doubt about the law. Section 56 then had no subsections. It read as follows:

56. Every person who has wilfully, in any manner, evaded or attempted to evade payment of the tax payable by him under this Part for a taxation year or any part thereof is liable to a penalty, to be fixed by the Minister, of not less than 25 per cent and not more than 50 per cent of the amount of the tax evaded or sought to be evaded.

A taxpayer who had wilfully evaded payment of tax was liable to two types of penalty:

(1) If found guilty following a prosecution under s. 132(1)(d) to a fine, fixed by the Court, of not less than $25 and not exceeding $10,000, plus, in an appropriate case, an amount not exceeding double the amount of the tax evaded.

(2) A penalty assessed by the Minister, under s. 56, of not less than 25 per cent and not more than 50 per cent of the tax evaded.

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There was a limitation on the Minister’s power to assess a penalty.

Subsection (3) of s. 132 provided that, if found guilty and fined under that section, the taxpayer was not liable to pay a penalty under s. 56 for the same evasion unless such penalty had been assessed prior to the laying of the information under s. 132.

The 1960 amendments added two new subsections to s. 56. The original section was renumbered subs. (1). Subsection (2) provided for a penalty based upon less stringent grounds. It gave the Minister no discretion as to the amount of the penalty which was fixed at a flat 25 per cent. The new subs. (3) provided that where a taxpayer is liable to any penalty under s. 56(2), he is not liable to a penalty under s. 56(1) in respect of the same statement or omission.

In full, the new subsections (2) and (3) read:

56. (2) Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made, or has participated in, assented to or acquiesced in the making of, a statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, as a result of which the tax that would have been payable by him for a taxation year if the tax had been assessed on the basis of the information provided in the return, certificate, statement or answer is less than the tax payable by him for the year, is liable to a penalty of 25 per cent of the amount by which the tax that would so have been payable is less than the tax payable by him for the year.

(3) Where a person is liable to a penalty under subsection (2) in respect of any statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, he is not liable to any penalty under subsection (1) in respect of the same statement or omission.

The amending Act also expressly provided that the new subs. (2) and (3) of s. 56 apply only in respect of any statement or omission made after the coming into force of the amending Act, namely August 1, 1960.

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The amending Act also replaced subs. (3) of s. 132, but the only change was to substitute the words “subsection (1) of section 56” for the words “section 56” in the original Act.

Section 132(3) then read:

132. (3) Where a person has been convicted under this section of wilfully, in any manner, evading or attempting to evade payment of taxes imposed by Part I, he is not liable to pay a penalty imposed under subsection (1) of section 56 for the same evasion or attempt unless he was assessed for that penalty before the information or complaint giving rise to the conviction was laid or made.

I can find no ambiguity in the law as amended and I think that the Minister’s submissions are right. The new subsection (2) of s. 56 provided for a new and independent penalty to that provided under subsection (1) which continued to apply with respect to statements made prior to August 1, 1960. The other amendments were consequential.

The penalties in issue here were assessed under s. 56(2) and are not subject to the condition provided for in s. 132(3). The error in the Tax Appeal Board and in the Exchequer Court is to be found in the common conclusion that penalties must be assessed before the information or complaint under both s. 56(1) and s. 56(2). This pays no heed to the plain terms of s. 132(3), above quoted, which limits the need for prior assessment to s. 56(1). For the above reasons, the plain terms of s. 132(3) do not create “an absurdity in the law” or make necessary an inference that the section must be applied not only to an assessment under s. 56(1) but also to one under s. 56(2).

I would allow the appeal with costs both here and in the Exchequer Court, set aside the judgment of the Exchequer Court and the decision of the Tax Appeal Board and restore the assessments.

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The judgment of Pigeon and Laskin JJ. was delivered by

LASKIN J. (dissenting)—The respondent taxpayer failed to report certain income in six successive taxation years, 1960 to 1965 inclusive. In January, 1967, two informations were laid against him, one including six charges under s. 132(1)(a) of the Income Tax Act and the other consisting of a single charge under s. 132(1)(d) comprehending the six taxation years. He pleaded guilty to all charges, and fines, as varied on an appeal, totalling $25,000 were levied against him. Thereafter, he was re-assessed for tax; and the Minister included in the reassessment notices dated May 2, 1967, penalties for each of the six taxation years, pursuant to s. 56(2) of the Income Tax Act, and amounting in all to $16,134.25.

The taxpayer objected to the inclusion of the penalties, relying on s. 132(3) of the Income Tax Act, and his objection was sustained by the Tax Appeal Board and, on appeal, by Kerr J. of the Exchequer Court[2]. The question in this Court is simply whether the Minister, on the facts herein, was authorized to impose the penalties.

Section 132(1)(a) and (d) of the Income Tax Act, so far as material, reads as follows:

(1) Every person who has

(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act, or a regulation,

* * *

(d) wilfully, in any manner, evaded or attempted to evade, compliance with this Act or payment of taxes imposed by this Act,…

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction [to a fine or to the fine and imprisonment].

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Having been convicted under s. 132(1)(d), the taxpayer was, ex facie, entitled, on the facts herein, to the benefit of s. 132(3) which is in these words:

Where a person has been convicted under this section of wilfully, in any manner, evading or attempting to evade payment of taxes imposed by Part I, he is not liable to pay a penalty imposed under subsection (1) of section 56 for the same evasion or attempt unless he was assessed for that penalty before the information or complaint giving rise to the conviction was laid or made.

The contention of the Minister that the penalties were imposed under s. 56(2) and not under s. 56(1) would be, of course, a complete answer if there was power to exact them in this case. In order to appreciate the competing contentions of the parties, I reproduce the text of s. 56 and shall relate its history. The section now reads:

(1) Every person who has wilfully, in any manner, evaded or attempted to evade payment of the tax payable by him under this Part for a taxation year or any part thereof is liable to a penalty, to be fixed by the Minister, of not less than 25 per cent and not more than 50 per cent of the amount of the tax evaded or sought to be evaded. 1950, c. 40, s. 19.

(2) Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made, or has participated in, assented to or acquiesced in the making of, a statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, as a result of which the tax that would have been payable by him for a taxation year if the tax had been assessed on the basis of the information provided in the return, certificate, statement or answer is less than the tax payable by him for the year, is liable to a penalty of 25 per cent of the amount by which the tax that would so have been payable is less than the tax payable by him for the year.

(3) Where a person is liable to a penalty under subsection (2) in respect of any statement or omission in a return, certificate, statement or answer filed

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or made as required by or under this Act or a regulation, he is not liable to any penalty under subsection (1) in respect of the same statement or omission.

Prior to 1960, s. 56 consisted of the single provision now shown as s. 56(1), and s. 132(3) similarly referred then to s. 56 simpliciter. In 1960, by s. 16 of c. 43, what are now subsections 2 and 3 of s. 56 were enacted and expressly given a prospective operation; and at the same time, by s. 31 of c. 43, s. 132(3) was amended to limit its application to s. 56(1), thus maintaining it in its previous state when it was simply s. 56.

There is no necessary connection between s. 56 and s. 132, since the Minister may exact penalties under s. 56 (extrajudicially so to speak, although subject to taxpayer challenge) without summary conviction proceedings being taken under s. 132. A connection arises however between s. 56 and s. 132(3) when there has been a conviction under s. 132(1)(d) and the Minister was also disposed to assess a penalty for the same conduct as expressed in s. 56(1). Wilful evasion or attempted wilful evasion of tax is redressible by a penalty under s. 56(1) and by prosecution under s. 132(1)(d). If both are to be pursued, the penalty must be assessed before the information is laid under s. 132(1)(d); otherwise the penalty cannot be exacted although there be a conviction for which a fine or a fine and imprisonment are imposed. Section 56(3) also excludes a penalty under s. 56(1) in the situation therein set out. Since the taxpayer was convicted under s. 132(1)(d), the question arises whether the Minister can ignore s. 132(3) and impose a penalty under s. 56(2), in respect of the very conduct which offended s. 132(1)(d), by relying on s. 56(3) as well as on s. 56(2).

Proper perspective on this issue, in the light of the facts which gave rise to it, is realized by

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reading s. 56 and s. 132(3) together. I should say at this point that counsel for the Minister does not rely in any way on the fact that convictions were entered under s. 132(1)(a) in addition to the conviction under s. 132(1)(d). He does however contend, on the one hand, for a limited reading of s. 56(1) (despite the words “in any manner”) so as to exclude therefrom the statements or omissions described in s. 56(2), and he seeks, on the other hand, to bring the conduct in this case, which is caught by s. 56(1) (being in the terms set out in s. 132(1)(d)), within s. 56(2) by reason of the word “knowingly”. Thus, he would justify the imposition of the penalty under s. 56(2) by a segmented interpretation and application of s. 56(1); and on this basis he would invoke s. 56(3) to support the exaction of that penalty to the exclusion of a penalty under s. 56(1). In short, the Minister would exclude statements or omissions from s. 56(1) (despite the words therein “in any manner”) but at the same time would not find “wilfully” and “knowingly” mutually exclusive. In my opinion, this is not only tortured construction, but it suggests also expedient shifting of position by the Minister on facts which do not warrant it and, indeed, it suggests afterthought. No problem would have arisen if the Minister (as it was open to him to do and as he had ample time to do) had assessed penalties before proceeding to prosecute under s. 132(1)(d), or if he had been content to limit prosecution to offences under s. 132(1)(a).

Counsel for the Minister conceded a possible overlap in the conduct that is referred to in s. 56(1) and in s. 56(2) but he contended that nonetheless the liability to penalties was mutually exclusive. This, indeed, was the point taken by counsel for the taxpayer who contended that mutual exclusiveness meant a two-way street; if liability to a penalty under s. 56(2) excluded liability under s. 56(1), so would liability to a penalty under s. 56(1) exclude liability under s. 56(2); and he submitted further that the

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conduct comprehended by s. 56(1) was different from that under s. 56(2).

What counsel for the Minister argues, however, in amplification of his contentions already noted, is that when the Minister is faced with a factual situation which would justify a penalty either under s. 56(1) or under s. 56(2) he is obliged by reason of s. 56(3) to act under s. 56(2) in imposing a penalty, with the result that none can be imposed under s. 56(1). It is in this sense that his submission must be taken that the penalties under s. 56 are mutually exclusive; and, it depends, of course, on accepting as valid the contention that the same conduct may be caught by s. 56(1) and by s. 56(2), not in the segmented sense already commented upon, but in the fuller sense that the Minister may choose to treat the conduct, although cognizable under s. 56(1), as coming under s. 56(2) which imposes a lesser maximum penalty.

The positions of the parties may be tested in a number of ways. First, if s. 56(1) and s. 56(2) are themselves mutually exclusive (in that to do something wilfully is different from doing it knowingly or through gross negligence), then s. 56(3) must be regarded as simply emphasizing that there is no overlapping. There is some support for this in the legislative scheme, since subsections 2 and 3 of s. 56 were enacted at the same time in supplement of s. 56(1). However, it may be thought strange that s. 56(3) is needed to reinforce an exclusiveness that already is evident from the formulations of s. 56(1) and s. 56(2). Hence, although I see no reason to doubt that such a reinforcement may have been provided ex abundanti cautela, I shall assume that s. 56(3), far from fortifying mutual exclusiveness, evidences an overlapping. If so, it poses the question whether the Minister is given a choice of treating the delinquency of the taxpayer under the less onerous penalty provision or whether he must always so treat it for penalty purposes.

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Second, therefore, and assuming that the Minister has an election whether to treat the delinquency as falling under s. 56(1) or under s. 56 (2), he has on the facts herein treated it as falling under s. 56(1) by prosecuting to a conviction under s. 132(1)(d). On this view, there can be no assessment of a penalty under s. 56(2). It would be unthinkable for the Minister to urge that although he has prosecuted under s. 132(1)(d) without previously assessing a penalty under s. 56(1), he may recede from his election and also treat the conduct as falling within s. 56(2) for penalty purposes.

Third, assuming that, for penalty purposes, there being an overlapping application of the respective provisions to the facts herein, the Minister must act under s. 56(2), then several situations may be envisaged:

(1) The Minister lays no charges but assesses a penalty under s. 56(2). He is then precluded from assessing one under s. 56(1) but he is not precluded from prosecuting under s. 132 (1)(a); and assuming he also prosecutes under s. 132(1)(d), no penalty could then be assessed under s. 56(1), whether or not there was a conviction under s. 132(1)(d); this would result from the effect of s. 56(3) or s. 132(3).

(2) If the Minister lays charges under s. 132(1)(a) and there is a conviction he may still assess a penalty under s. 56(2) and if there is liability to such a penalty (it is not precluded by laying the charges under s. 132(1)(a)), then none can be assessed under s. 56(1).

(3) The Minister lays charges under s. 132 (1)(d) alone or under both s. 132(1)(d) and s. 132(1)(a) without previously assessing a penalty. That is the present case; and the argument that a penalty may still be imposed

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under s. 56(2) must rest on the premise of overlapping and that the Minister is obliged to act in such case under s. 56(2). The fact that no penalty may be exacted under s. 56(1) is the result then not of s. 132(3) but of s. 56(3). The difficulty with this contribution is that a taxpayer whose delinquency falls within both s. 56(1) and s. 56(2) would never be liable to a penalty under s. 56(1) (and note that s. 56(3) speaks of a person being liable to a penalty), although it is clear under s, 132(3) that a s. 56(1) penalty is envisaged as open to assessment.

Of the three possible constructions of the relevant provisions, namely, mutual exclusiveness, election by the Minister, and mandatory duty on the Minister, the first two support the conclusion that on the facts herein the taxpayer is not liable to the penalty under s. 56(2); and the third supports the assessment of the penalty on a strained reading of the statutory provisions.

It is certainly rational construction to view separate subsections, which define conditions upon which different penalties are assessable, as dealing with different situations unless it can clearly be seen that the same conduct may be within both. Penalty provisions are normally considered as appendant and not governing. Even if there be an overlap in s. 56(1) and s. 56(2) so that the same misconduct is embraced by both, the penalty appropriate thereto may be held to have been determined according to the provision under which enforcement proceedings are first taken. Indeed, to say that a person is liable to a penalty is merely to expose him to the risk thereof; only when the necessary action or step is taken to exact it does it become effective. Assuming, therefore, that there may be cases where the Minister has a choice in assessing under s. 56(1) or under s. 56(2), he has, in my opinion, lost that choice here (and s. 56(3) is in consequence spent) when a charge has been successfully prosecuted under s. 132(1)(d) without any penalty having been

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assessed before the charge was laid. The proscribed conduct having thus been brought under s. 56(1), there was no right, by reason of s. 132(3), to impose a penalty in addition to the fines.

Finally, a broader consideration moves me to the conclusion to which I would come. There is no presumption, certainly not in this case, in favour of Ministerial statutory power. If there is difficulty, as on the view most favourable to the Minister there is in this case, in reconciling connecting provisions of an enactment, that construction that permits their most compatible application in any fact situation is to be preferred.

In concluding these reasons, I feel that I should advert to an issue which emerged during the course of the argument by counsel for the Minister, namely, whether the effect of the 1960 amendments was to deprive s. 56(1) of any prospective application and whether s. 132(3) was likewise limited to past occurrences. In short, the contention appeared to be that an implied repeal was effected of these provisions, because the 1960 amendments involved a departure from the previous policy of forbidding an assessed penalty in addition to a judicially imposed penalty after a charge and conviction under s. 132(1)(d).

Any such contention is without merit. There is no language in the legislation to support it and s. 10 of the Interpretation Act, R.S.C. 1952, c. 158, as amended (now s. 10 of the Interpretation Act, 1967-68 (Can.), c. 7) is against it. Not only is there a strong presumption against the implied repeal of legislation, but the suggested change of policy is inconsistent with the retention of the same policy under s. 131(3) of the Income Tax Act.

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For all the foregoing reasons, which differ somewhat from those below, I would dismiss the appeal with costs.

Appeal allowed with costs, PIGEON and LASKIN JJ. dissenting.

Solicitor for the appellant: D.S. Maxwell, Ottawa.

Solicitors for the respondent: Mahony & Dawson, Calgary.