John W May, Executor of the Estate of Adam Koziej v. Minister of National Revenue, [1985] 2 CTC 2407, 85 DTC 690

Sarchuk, TCJ:—This is an appeal by the Executor of the Estate of Adam Koziej from an assessment by the Minister of National Revenue with respect to the 1979 taxation year. The relevant facts are not in dispute. Mr J W May (May) was named as executor under Adam Koziej's Will dated June 1, 1978. Koziej died on January 9, 1979. The said Will provided bequests to persons who were not relatives of Koziej but made no provision for his wife from whom he apparently was separated at the time of death. May applied for probate of the Will, but before probate could be obtained the wife filed a Caveat in the Surrogate Court of the Judicial District of York. No evidence was adduced as to the date upon which the application was made or the Caveat was filed. Upon a subsequent motion for directions May was appointed administrator pendente lite of the Estate. This order was dated September 4, 1979. In due course on February 5, 1981, letters probate were granted to May.

A return of income for Koziej's 1979 taxation year was required to be filed by his legal representatives within six months from his day of death, that is on or before July 9, 1979. In fact the return was not filed until August 4, 1982. Accordingly, a penalty was assessed pursuant to subsection 162(1) of the Income Tax Act.

The relevant sections read:

150(1) A return of the income for each taxation year in the case of a corporation and for each taxation year for which a tax is payable in the case of an individual shall, without notice or demand therefor, be filed with the Minister in prescribed form and containing prescribed information,

(b) in the case of a person who has died without making the return, by his legal representative, within 6 months from the day of death.

162 (1) Every person who has failed to make a return as and when required by subsection 150(1) is liable to a penalty of . . .”

Two issues were raised by the appellant:

A Was there a “legal representative" who could be charged with the obligation to file a tax return on behalf of Koziej as required by paragraph 150(1)(b) of the Act?

The provisions of the Income Tax Act and in particular paragraph 150(1)(b) require that a return of the income for each taxation year shall be filed with the Minister in prescribed form and containing prescribed information, in the case of a person who has died without making a return, by his legal representatives, within six months from day of death. The term “legal representatives" is not defined in the Income Tax Act. Mr May suggests that as a result it is appropriate to look to provincial statutes which govern the administration of the estates of deceased persons to determine an appropriate and proper definition. The Estate Administration Act, RSO 1980, c 143 defines “personal representative” as an executor, an administrator, or an administrator with the Will annexed. It was submitted that each of the persons included in the foregoing definition is a person who has received a grant of probate or administration from the proper Court and that in restricting the class of personal representatives, the provincial legislature intended to create a scheme whereby supervision over all forms of administration of the estates of deceased persons was vested in the Surrogate Court. It was further submitted that rights and obligations of a personal representative and by analogy a “legal representative” as set out in the relevant provision of the Income Tax Act flow from the grant made by the Surrogate Court and commence at the time the grant is made. Mr May argued that until such time as a grant of probate, administration, or administration with the Will annexed was made in respect of the estate of a deceased person, there is no “legal representative” who could be charged with the obligation to file a tax return and that consequently no penalty can be imposed for failure to file at a time when no legal representative existed. No authority was cited for the foregoing proposition.

It was the appellant’s position that Parliament could have enacted a definition of “legal representative” for tax purposes. In the absence of such a definition and in the face of the ambiguity existing in the present wording of subsection 150(1) of the Income Tax Act, subsection 162(1) being essentially a penalty section should be construed in a manner favourable to the taxpayer.

The respondent's position is that May was the executor of the estate from the date of death of Koziej or, in the alternative, that May became an executor de son tort following Koziej's death. In either event he was the legal representative of the deceased within the meaning of paragraph 150(1)(b).

In support counsel for the respondent referred the Court to MacDonell, Sheard & Hull, Probate Practice (3rd ed 1981). At page 193, the learned authors state:

The title of the executor being derived from the will, it follows that before he proves the will he may do many of the acts pertaining to his office.

and further at page 210:

It is quite clear that an executor derives his title and authority from the will of his testator and not from any grant of probate. The personal property of the testator, including all rights of action, vests in him upon the testator’s death, and the consequence is that he can institute an action in the character of executor before he proves the will. He cannot, it is true, obtain a decree before probate, but this is not because his title depends on probate, but because the production of probate is the only way in which, by the rules of the Court, he is allowed to prove his title. An administrator, on the other hand, derives title solely under his grant, and cannot, therefore, institute an action as administrator before he gets his grant.

The foregoing proposition has been approved in a number of cases. In re Clazy, [1928] 2 DLR 971 at 972 Murphy, J stated:

Probate is necessary as the authenticated evidence of the executor’s title but is not at all the foundation of such title. The executor derives all his interest from the will itself and the property of the deceased vests in him from the moment of the testator’s death. Woolley v Clark (1822), 5 B & A 744, 106 ER 1363.

In re Green and Flatt (1913), 13 DLR 547 the Court stated:

Upon reasons having their origin in the early history of the Courts of England, the Ecclesiastical Courts originally, and that Courts of Probate now, have exclusive jurisdiction in matters testamentary; and the executors of a deceased person cannot in the ordinary courts of civil jurisdiction shew their representative capacity except by the production of letters probate. But executors, nevertheless, derive their title not from the letters probate — which are merely evidence — but from the will itself; and before probate is issued they are clothed with their full title. When executors are sued, the plaintiff may prove their representative capacity either by producing letters probate or by shewing such intermeddling as will raise a presumption of executorship.

May derived his title of executor from and under the Will, which Will spoke from the date of death. In due course this title was “proved” upon the grant of letters probate as having existed at all times. I am not inclined to give the phrase “legal representatives” as it is used in paragraph 150(1)(b) of the Act the narrow meaning urged by May. An executor named in an unprobated Will has been held to be a “personal representative” within the meaning of Rule 90 of the Rules of Practice (Ontario). See Hanton and Hanton v White, 1956 OWN 775 (see also Theobald v Winnipeg Musicians Assoc. (1927) 1 DLR 51 at 63; Felton v Ranaghan, [1955] 3 DLR 526, per Gordon, JA at 534 et seq).

I find that May was the legal representative of the deceased person within the meaning of paragraph 150(1)(b) of the Act. There is no doubt that he accepted the office of executor; he applied for probate and acted otherwise in a manner sufficient to show that he had taken upon himself the duties of the office to which he was nominated by the testator. There was no evidence before me that at any time up to and including July 9, 1979, there was any legal impediment to the fulfilling of the statutory duty imposed under paragraph 150(1)(b) of the Act.

As a result of this conclusion it is not necessary for the Court to address the respondent's second submission that May was an executor de son tort.

B Does this Court have jurisdiction to reduce a penalty imposed under subsection 162(1) of the Income Tax Act?

Mr May submitted that subsection 171(1) of the Act gives this Court jurisdiction to dispose of an appeal by dismissing it or by allowing it and vacating the assessment, varying it or referring it back to the Minister for reconsideration and reassessment. No other restrictions on the jurisdiction of the Court are contained in the statute and as a result the Court is governed only by the requirement that it act judicially and in accordance with the law. He argued that there is no statutory impediment to prevent this Court from varying the assessment by reducing the amount of the penalty assessed by the Minister to a nominal sum. On the other hand he conceded that this Court did not have jurisdiction to vacate the penalty in its entirety.

The cases of Eyamie v MNR, [1983] CTC 2708; 83 DTC 649; Meikar & Meikar v MNR, [1979] CTC 2810; 79 DTC 683; Georgia Medical-Dental Building Limited v MNR, [1972] CTC 2351; 72 DTC 1316; Alcide Vaillant v MNR, [1969] Tax ABC 62; 69 DTC 60; The Hughes-Owens Company (Limited) v MNR, 6 Tax ABC 191; 52 DTC 161 and Granada Distributors (Canada) Limited v MNR, [1983] CTC 2554; 83 DTC 511 cited by the respondent in support of the proposition that tribunals of concurrent jurisdiction have held themselves unable to interfere with the quantum of a penalty were, in the view of May, distinguishable on their facts. In the majority of these decisions the explanations offered by the respective appellants for the default in filing were rejected as unsatisfactory. Furthermore, in none of the cases was the issue of jurisdiction to reduce the penalty squarely placed before the Court for determination. In particular no discussion of the proper interpretation of the phrase —“liable to a penalty” appears to have taken place. Accordingly May submitted that those judgments, although dealing with the question of jurisdiction in a general sense, are obiter die tum and need not be followed by this Court in pursuance of the principle of comity.

Mr May further argued that where a federal or provincial statute provides that a person “is liable’ to a penalty upon judicial conviction for the commission of an offence, the courts have held that the penalty provided therein is a maximum penalty, subject to decrease by the convicting tribunal. This principle has been applied to taxing statutes, and an application for leave to appeal such a determination in a taxing statute to the Supreme Court of Canada was dismissed. R v Duchesne (1961), 131 CCC 311; The King v Bell, [1917-27] CTC 230; 1 DTC 55.

Mr May urged this court to find that Parliament did not intend to provide two vastly different procedures through the use of identical language in different paragraphs of the same Act, and furthermore, that Parliament did not intend to place the respondent in a more advantageous position by permitting him to avoid judicial review of the appropriateness of a penalty through the expedient of proceeding by the administrative imposition of a penalty. Since the language used in subsection 162(1) is ambiguous and does not disclose a clear legislative intent being a penalty provision contained in a taxing statute it should be construed in favour of the appellant.

The respondent’s position is that the language of section 162 in its totality is indicative of a Parliamentary intention to impose a specific penalty. An analysis of that section discloses that subsection 162(1), as it read for returns required to be filed before 1982, established separate penalties depending upon the amount of tax unpaid when the return was required to be filed; subsection 162(2) provided a penalty which varied depending on the number of days a return was late, up to a maximum of $50, for returns required to be filed by trustees in bankruptcy, receivers, etc. and finally subsection 162(3), invoked in the case of an incomplete information return, prescribes a graduated penalty calculated according to a formula but “not less than $25 or more than $100, or, in the case of an individual, of such lesser amount as the Minister may have fixed . . .”

Such differences among these penalty provisions as well as the existence of subsection 220(3) of the Act* [1] can only lead to the conclusion that Parliament has turned its mind to the provision of relief from, firstly, the requirement to file and, secondly, from the quantum of the penalty to be imposed for failure in the circumstances specifically governed by those provisions. Such discretion as is afforded under the Act is limited to two specific instances (being those enunciated in subsection 220(3) and paragraph 162(3)(b)), and in both cases such discretion as exists is given to the Minister. In the first instance, Parliament has turned its mind to the provision of relief from the obligation to file a return of income on or before a specific date, and has seen fit to provide a mechanism whereby the Minister can extend the time for filing. In the second instance, Parliament has turned its mind to the exercise of a discretion in regard to the quantum of the penalty to be applied, and has chosen to permit such a discretion only in the case of an individual taxpayer and only with respect to a penalty under subsection 162(3) of the Act.

This issue is not new. In Wallace v MNR, 42 Tax ABC 1; 66 DTC 593, Fordham, Assistant Chairman of the Tax Appeal Board, stated at 8 (DTC 597):

There has been a curious conflict of decisions on the question of whether a lower penalty than the maximum stated amount in a statute may be imposed. In Onta- rio, Nova Scotia and Manitoba, it was held that there is no discretion in the court and that the exact amount prescribed by the statute (the Income War Tax Act, 1917) must be imposed. In Alberta, however, the opposite view has been taken by the Court of Appeal of that province. Leave to appeal to the Supreme Court of Canada from the Alberta court’s judgment was refused on the ground of want of jurisdiction. See Rex v Bell, [1925] 2 DLR 57. That is how the question remains, to-day, and it may be years before uniformity throughout Canada in this regard is obtained, if ever.

Although the specific decisions were not cited by the Chairman in all probability he was referring to The King v Thompson Manufacturing Company Ltd, [1917-27] CTC 93; 1 DTC 5 (Ont. HCJ); The King v Cyril Smith, (N.S.C.A.) and Rex v Harrison, Rex v O'Kelly, [1924] 3 DLR 312 (Man CA) in which cases the courts held that there was no discretion to impose a lesser penalty than that stipulated by section 9 of the Income War Tax Act (1917), and Rex v Fraser, [1944] 2 DLR 461 (PEISC) and The King v Charles Bell, (1924) 2 WWR 616 (Alta CA) where the courts held that a discretion did exist to impose a penalty other than that stipulated in the relevant section.

Section 9 of the Income War Tax Act (1917) was in issue in all of the foregoing cases with the exception of Rex v Fraser where section 39 of the Fisheries Act 1932 (Canada) c 42, an almost identical section, was being considered.

I recognize that these decisions dealt with penalties imposed following summary conviction and that a major thrust of the arguments advanced therein related to the applicability of section 1029 of the Criminal Code. Notwithstanding that distinction these cases are relevant and may properly be considered by this Court in the case at bar.

As noted by Fordham there is no uniformity of opinion as to whether Parliament did or did not intend to give the Court discretion to vary the penalty provided for by a section such as section 163 of the Act. The Court of Appeal of Alberta and the Supreme Court of Prince Edward Island reached a diametrically opposite conclusion to that held by the Ontario High Court of Justice, the Nova Scotia Court of Appeal and the Manitoba Court of Appeal.

After careful consideration of all of these decisions the reasoning in the case of Rex v Harrison commends itself to me. In that case, Trueman, JJA stated:

The utmost, it seems to me, that can be said in support of the view that s 9(1) provides for a discretion is that if a discretion were not intended, language with a peremptory significance obvious to the lay mind would have been used; familiar examples of which would be known to the parliamentary draftsman. For the words “shall be liable’ there might have been substituted, “shall forfeit" or “shall incur" or “shall suffer" or “shall pay". See Customs Law Act, 1876 (Imp), c 36, ss 106 and 168; Act, 1 Wm & Mc c 18; Customs Act, RSC 1906, c 48, ss 186, 187, 189, 193; and Act, 1 Jac 1, c 27.

Yet in what respect are these examples more absolute in fixing liability or wherein do they exclude discretion to a more positive degree than do the words in the section? Discretion can only exist if provision is made for it. To import a discretion here is to hold that the words “shall be liable", etc, mean, in one view, “shall be liable to a penalty not exceeding twenty-five dollars", and in another view, as no minimum sum is named, discretion to impose no penalty at all. The notion that the penalty is discretionary would appear to be the result of suggestion, derived from the habitual use in statutory provisions of the words “shall be liable’ when conferring discretion to impose a fine within the limits of a maximum and a minimum sum. If the words are removed from the influence of this suggestion, and are read literally, their mandatory nature is seen to be beyond question. See Foss Lbr Co v The King (1912), 8 DLR 437, 47 SCR 130; Re Burton and Blinkhorn (1903), 2 KB 300; Howard v Bodington (1877), 2 PD 203, at p 211.

I do not agree with the submission made by May that section 163 of the Act is imprecise and ambiguous. As was stated by Harris, CJ in The King v R Cyril Smith (supra) with reference to section 9 of the Income War Tax Act, a section couched almost in identical terms:

When, indeed, the language is not only plain but admits of but one meaning, the task of interpretation can hardly be said to arise (and those incidental rules which are mere aids, to be invoked when the meaning is clouded, are not to be regarded). It is not allowable, say Vattel, to interpret what has no need of interpretation. Absoluta sententia expositors non eget. Such language best declares, without more, the intention of the lawgiver, and is decisive of it. The legislature must be intended to mean what is has plainly expressed, and consequently there is no room for construction. It is therefore, only in the construction of statutes whose terms give rise to some ambiguity or whose grammatical construction is doubtful, that the courts can exercise the power of controlling the language in order to give effect to what they suppose to have been the real intention of the law makers. Where the words of a statute are plainly expressive of an intent, not rendered dubious by the context, the interpretation must conform to and carry out that intent. It matters not, in such a case, what the consequences may be.

On further comment is warranted. The Bell and Duchesne decisions were appeals in criminal proceedings, albeit arising pursuant to the provisions of a section of the Income War Tax Act. In both cases there was no dispute that section 1029 of the Criminal Code (as it then read) applied and that therefore the Court had a discretion as to quantum provided that such a discretion was exercised in accordance with the provisions of section 1029 of the Code, ie “within such limits if any as are prescribed in that behalf. Even if this Court were to accept May's argument that the rationale applied in R v Bell is correct (and that R v Harrison is wrong) I would hold that the wording of subsection 162(1) of the Income Tax Act does prescribe limits which preclude the imposition of a penalty other than one calculated pursuant to the exact formula set out therein.

Mr May forcefully urged me to disregard certain decisions of other judges of this Court on the basis that consideration was not given to R v Bell and R v Duchesne (supra), and furthermore that no consideration had been given to the proper interpretation of the phrase “liable to a penalty”. That position is not entirely correct. In Wallace v MNR (supra), the Board was clearly aware of the relevant decisions including Bell, and took them into account in reaching the conclusion that it could not interfere in the matter of quantum of penalty. This decision was referred to with approval in the judgments of this Court cited by the respondent.

I am obliged to follow the judgments of courts of equal or co-ordinate jurisdiction in the absence of strong reasons to the contrary. In Canada Steamship Lines Limited v MNR, [1966] CTC 255; 66 DTC 5205, McRuer, CJHC, in considering what strong reasons would justify departure from a decision of a judge of the same Court said, in Rex v Northern Electric Co, (1955) 3 DLR 449 at 466:

I think that “strong reason to the contrary” does not mean a strong argumentative reason appealing to the particular judge, but something that may indicate that the prior decision was given without consideration of a statute or some authority that ought to have been followed. I do not think “strong reason to the contrary” is to be construed according to the flexibility of the mind of the particular judge.* [2]

No such strong reasons exist in the case at bar.

For the foregoing reasons the appeal is dismissed.

Appeal dismissed.