Discovery Research Systems Inc. v. Her Majesty the Queen, [1992] 1 CTC 2394

Bonner, J.:—This is an application by the appellant, Discovery Research Systems Inc., for an order:

1. (a) for default judgement (sic) pursuant to subsection 63(2)(c) of the Tax Court Rules; or;

(b) for a direction pursuant to subsection 63(2)(b) that this appeal be heard on the basis that the facts alleged in the notice of appeal are presumed to he true;

2. that the hearing fee in this matter be paid to the Applicant; and

3. that the costs of this application in any event he payable forthwith to the Applicant.

The facts upon which the motion was argued are set forth in the affidavit of John Kennedy. The notice of appeal was transmitted to the Deputy Attorney General of Canada on June 26, 1991 and thus the last day for filing and serving the reply to the notice of appeal as fixed by section 44 of the Tax Court of Canada Rules (General Procedure) was August 25, 1991.

Although the reply was prepared by Mr. Kennedy and a letter from Revenue Canada approving it was received by him on August 16, 1991, the matter of serving and filing was overlooked by the Department of Justice until October 4, 1991. It appears to be a simple case of oversight.

I turn first to the question whether it would be appropriate to permit the filing and service of the reply under Rule 63(2)(a). In my view the answer in light of the decision of this Court in Carew v. The Queen, [1992] 2 C.T.C. 2069, 92 D.T.C. 1291 is plainly no. The failure here is measurably more serious than in Carew, supra. The respondent has in this case failed not only to file the reply but also to serve it. I note too that the respondent has not applied for an extension of time for filing the reply save by way of request for such relief on the return of this motion. Finally, it is of great significance that Mr. Kennedy in his affidavit does not suggest that the Department of Justice maintains any sort of reminder system designed to ensure that replies are filed in time. It would seem that the oversight in this case is the very sort of thing that could easily have been prevented by maintaining a simple Doomsday Book” The equities are not on the side of those who fail to take such a fundamental precaution. It should be remembered that where the Minister of National Revenue has assessed tax he ought to be in a position to defend the assessing action by filing and serving a reply to a notice of appeal within a 60-day period. If within that period he can't say why he has assessed he should give serious thought to the question whether he should have assessed in the first place.

The intent of the Tax Court Act in its present form and of the Rules is clearly set out in section 3 of the Rules. Cases are to be dealt with as expeditiously as circumstances and considerations of fairness and justice permit. If extensions of the time for filing replies were permitted in cases of delay caused by simple inadvertence there would be a swift return to the "bad old days" when, under the rules which governed proceedings commenced before 1991, the great majority of replies were served and filed well after the 60-day deadline. That practice was one of the evils the present Rules were intended to eradicate. The Rules would be rendered toothless if late filing were permitted in cases such as this. For that reason the cases relied on by Mr. Weder, counsel for the respondent, are distinguishable. The decisions of this Court and of its predecessor on which Mr. Weder relied were decided under the former rules which were not sufficient to stamp out the dilatory practices of counsel for the Minister of National Revenue. The decisions of the Supreme Court and the Federal Court- Trial Division, on which he relied were decided under rules not intended to eradicate the delays against which the present Rules are directed.

I turn next to the question whether the appellant is entitled to judgment allowing the appeals under paragraph 63(2)(c) of the Rules. The relief sought in the notice of appeal is judgment allowing the appeals and referring the assessments for the appellant's 1987 and 1988 taxation years back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is entitled under paragraph 20(1)(p) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") to the deductions in respect of bad debts which were disallowed on assessment. The facts alleged in the notice of appeal must be taken to be correct for purposes of an application under paragraph 63(2)(c). In this case the facts alleged in the notice of appeal are not sufficient to entitle the appellant to the relief sought. As noted, two taxation years are under appeal, namely the taxation years 1987 and 1988. No allegation of fact is made in respect of the date on which the appellant's fiscal year ends and thus it is impossible to tell, having regard to section 249 of the Income Tax Act, the extent to which the amendment to paragraph 20(1)(p) effected by S.C. 1988, c. 55, section 12 has a bearing on the outcome. Furthermore, nowhere in the notice of appeal is there an allegation that the loans totalling $30, 120.04 and $73,414.32 were established by the taxpayer to have become uncollectible in the year. Such a fact is essential to deductibility under paragraph 20(1)(p) of the Act. The allegation in paragraph 3 of the notice of appeal that “the Company made allowances for bad debts . . .” does not, as submitted, give rise to an inference that the loans were established to have become uncollectible in the year. Thus, I am of the view that the facts alleged in the notice of appeal are not sufficiently complete to warrant relief under paragraph 63(2)(c) of the Rules.

It follows from the foregoing that a hearing will be required to enable the appellant to establish those additional facts which are a prerequisite to the granting of the relief sought. There will be a direction however under paragraph 63(2)(b) of the Rules that the hearing proceed on the basis that the facts alleged in the notice of appeal are presumed to be true. In the circumstances, because the appellant will require a hearing if its appeals are to succeed, it would not be appropriate to relieve the appellant of the requirement to pay a hearing fee under the Rules. The hearing fee will of course be taken into account when costs are ultimately disposed of.

This application has been occasioned by the tardiness of the Department of Justice in filing the reply and nothing else. The appellant shall therefore have its costs of the motion in any event of the cause.

Order accordingly.