Canadian Pacific Hotels Limited v. Minister of National Revenue, [1979] CTC 2370, 79 DTC 274

Roland St-Onge:—The appeal of Canadian Pacific Hotels Limited came before me on June 20, 1978, at the City of Montreal, Quebec, and the issue is whether the appellant was, by law, obliged to withhold the sum of $11,231.80 for the period between June 27 and July 10 in the 1975 taxation year for the wages paid to the personnel employed at the Manoir Richelieu Limited and to remit the same to the Minister of National Revenue, as prescribed by sections 153 and 227 of the new Income Tax Act.

At the hearing, four witnesses were heard:

1. Mr Charles W Bisseger, Chartered Accountant and licensed trustee in the Manoir Richelieu bankruptcy;

2. Mr Laflamme, Chartered Accountant and Agent for Montreal Trust;

3. Mr Michael Jackson, former comptroller of the five CP hotels in the Eastern region and now comptroller of The Royal York and

4. Mr Howard Walker, Assistant Secretary of Canadian Pacific Hotels Limited since 1975.

The uncontradicted facts are as follows:

1. From April 15 to July 17, 1975, the appellant was managing and operating the affairs of Manoir Richelieu Limited and it was the appellant’s duty to prepare the cheques for the personnel employed at the hotel.

2. The appellant was paying the employees working at the hotel through a bank account held at La Caisse Populaire de la Malbaie under the name “Manoir Richelieu-CP Hotel Account (b)”.

3. The only persons authorized to draw cheques on the said account were employees of the appellant. This was substantiated by a resolution of the Board of Directors of Manoir Richelieu Limited passed on April 15, 1975.

4. The appellant, through its employees, did in fact pay the wages of the personnel employed at the hotel and this fact is substantiated by all the cheques bearing the name of Manoir Richelieu Limited as paymaster.

5. The said cheques were all drawn on the same account No 11610, which is the payroll account, and all signed by the Canadian Pacific Hotels Limited employees named in the resolution filed as Exhibit R-4.

6. The appellant, through its employees, deducted from the wages paid to the personnel the amount required by law to be withheld on account of the Manoir Richelieu Limited.

7. On July 17, 1975, Institutional Investors Trust took over the assets of the Manoir Richelieu Limited by virtue of a seizure under a trust deed and Montreal Trust acted as its agent. There was some $40,000 in the bank accounts at the Caisse Populaire de la Malbaie.

8. Montreal Trust opened a new bank account No 11848 in order to pay the wages starting on July 17, 1975.

9. The cheques made by the employees of Canadian Pacific Hotels Limited to pay the Manoir Richelieu Limited’s employees for the period June 27 to July 10 were paid out of the $40,000 which remained in the bank accounts at the time of the seizure by Montreal Trust and it was paid with the authorization of Montreal Trust.

10. Consequently there was no money when the time came to remit the deductions to the Minister of National Revenue and no trust account had been opened for this purpose.

11. Mr Bisseger, trustee of the estate of Manoir Richelieu Limited paid the Receiver General of Canada the unemployment insurance premiums that had been deducted at that time.

Mr Jackson testified that, following the resolution by Manoir Richelieu Limited on April 15, 1975, he opened two bank accounts in the name of Manoir Richelieu Limited: one was Bank Account (a) which was to accumulate the profits from the operation of the hotel and the other was Account (b) which was for the drawing of payroll cheques.

A cheque of $2800 given by Mr James Connolly, Secretary of Manoir Richelieu Limited, was endorsed by the witness and given to Mr Ricard, Manager of La Caisse Populaire de la Malbaie, to provide additional funds to open the accounts. Before that date, the employees were paid directly by Mr Dempsey, an employee of the Manoir Richelieu Limited.

Mr Jackson also stated that the employees of Canadian Pacific Hotels Limited were never authorized to pay for the said company and although Account (b) bears the name of Manoir Richelieu CPH, this was only for identification purposes, that the list filed as Exhibit A-8 of all the employer’s taxation numbers used by Revenue Canada for all their operations in Canada of the hotels under the jurisdiction of Canadian Pacific Hotels Limited does not show any number for the Manoir Richelieu Limited and the revenue to pay the expenses were generated from the operation of the Manoir Richelieu Limited.

Mr Howard Walker testified that there was no resolution from the Board of Directors of Canadian Pacific Hotels Limited authorizing its employees to sign cheques or open an account for the operation of the Manoir Richelieu Limited and that Canadian Pacific Hotels Limited never paid any employee of the said hotel.

Counsel for the appellant argued that for the period June 27 to July 10, 1975, the employer was not beyond the delay in remitting the deductions to the Minister of National Revenue and there was enough funds in the Manoir Richelieu Limited bank accounts to do so; that there was no resolution from Canadian Pacific Hotels Limited authorizing the opening of bank accounts or the signing of the cheques for the operation of the Manoir Richelieu Limited although there was some authorization for the other hotels under the Canadian Pacific Hotels Limited’s jurisdiction.

In his opinion, because the employees, the operation of the hotel, the funds and the bank accounts were under the jurisdiction of the Manoir Richelieu Limited, the latter was the one disignated under section 153 of the Act to deduct and remit the money to the Minister. They also had the obligation to set a trust account for that purpose and there was no such account when Canadian Pacific Hotels Limited took over the management of the operation. Referring to the decision In re Bankruptcy of G & G Equipment Co Ltd, 74 DTC 6407, he said that the source of the funds determines the person who has the obligation to deduct and remit the money to the Minister.

Counsel for the respondent argued that the appellant company had five superior employees to control the bank accounts and to pay the employees. He referred to Exhibit R-2, which is the agreement between the appellant and the Manoir Richelieu Limited, and more particularly to pages 2, 3, 4, 6, 7, 15, 17 and 18 to prove that point. He also stated that the appellant company had the control of the day to day operations of the Manoir Richelieu Limited and it was done in the same manner as the other hotels under the jurisdiction of Canadian Pacific Hotels Limited. The system was the same, but in the case at bar, they failed to remit the deductions to the Minister of National Revenue. To him, the source of income has nothing to do with qualifying the person who has to deduct and remit the money to the Minister.

According to the evidence adduced, it appears to me that the appellant company was only the agent of the Manoir Richelieu Limited to manage the operation of the hotel, and as such, did not have the obligation to deduct, to set up a trust account and to remit therefrom the money to the Minister. It is obvious that Manoir Richelieu Limited had this legal obligation since its employees, the source of income, the bank accounts and the operation of the hotel were under its jurisdiction.

It is not the agent who dictates the policy to be followed in the operation of a business of the principal but the latter.

Assuming that Canadian Pacific Hotels Limited, as agent, was negligent which is not the case since it deducted and deposited the money in the Manoir Richelieu bank accounts, the principal would still be responsible for the acts of its “commettant” or agent.

On the contrary, Manoir Richelieu Limited was negligent and at fault by not setting up, as required by law, a trust account for this purpose and the appellant cannot be held responsible for this mistake.

Furthermore, it is not the appellant company but the Manoir Richelieu Limited that was under seizure and became bankrupt. In the case of a claim for unpaid salaries, the Manoir Richelieu Limited would have been sued, not the appellant; and as a matter of fact, Montreal Trust, the agent for the Manoir Richelieu Limited, and not the appellant company, paid the unpaid salaries and the claim for the unemployment insurance deductions after seizure.

In my opinion, the obligation to comply with sections 153 and 227 of the Act is not vested in the agent of a corporation but in the corporation itself which has the legal obligation to act in accordance with the said sections.

For these reasons the appeal is allowed.

Appeal allowed.