PPG Industries Canada LTD v. Minister of National Revenue, [1978] CTC 2055, 78 DTC 1062

A W Prociuk:—The appellant corporation, formerly known as Kalium Chemicals Ltd, appeals from the respondent’s assessment dated January 8, 1975 wherein non-resident tax in the sum of $4,238.39 together with penalty and interest thereon in the sum of $1,200.82 was assessed and demanded pursuant to the provisions of paragraph 212(1)(d) and subsections 214(1), 215(1), 215(6) and 227(8) of the Income Tax Act, SC 1970-71-72, c 63, in respect of the 1972 taxation year. The assessment is based on the ground that the appellant in the said taxation year paid to ACF Industries Incorporated and ZIP Transportation Company, Inc of the States of New Jersey and Texas respectively, United States of America, money for rent of rail equipment used in Canada but did not withhold and remit to the respondent the non-resident tax as provided for in the above-noted sections of the Act.

The appellant’s ground of appeal is that the assessment is based on fixed gross rental paid by it to the above-named non-residents whereas it ought to have been calculated on the net rental after it was credited a Canadian mileage allowance in the said year by the non-resident lessors. Briefly put, the issue here IS: on what amount is the withholding tax exigible?

During 1972 the appellant, then known as Kalium Chemicals Ltd, of Regina, Saskatchewan, carried on the business of mining, producing and marketing potash in connection with which it required the use of railway cars to transport its products both within and outside Canada. It leased railway cars for this purpose from the above-named non-resident corporations. In each case it obligated itself to pay as rent a fixed sum per car per month, subject however to the obligation of the respective lessors to collect any amounts due from the railroads which also used those cars and to credit the said amounts to the appellant’s fixed rental account, thus arriving at the net amount of rent in each case. The leases were filed as Exhibit A-1 dated February 8, 1972 in respect of ACF, and Exhibit A-2 dated November 17, 1971 in respect of ZIP. Mr Boomer, traffic manager for Kalium, testified on behalf of the appellant. He stated that it took two or three months after the year-end to determine the amount of mileage allowance. The appellant did not withhold or remit any tax in respect of the amounts paid or credited to ACF or ZIP in the said year. The amounts so paid or credited were $1,451.51 to ACF and $2,786.88 to ZIP. The appellant was assessed on these sums and the respondent did not take into account the credits allowed by ACF or ZIP on account of the use of cars.

Counsel for the appellant submitted that the actual rent paid or credited which is chargeable to tax under paragraph 212(1 )(d) of the Act is determined under the leases. It is the fixed rental less certain credits and this, according to said counsel, does not constitute a deduction prohibited by subsection 214(1).

Paragraph 212(1 )(d) reads as follows:

212. (1) Every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to him as, on account or in lieu of payment of, or in satisfaction of,

(d) rent, royalty or a similar payment, including, but not so as to restrict the generality of the foregoing, any payment

(i) for the use of or for the right to use in Canada any property, invention, trade name, patent, trade mark, design or model, plan, secret formula, process or other thing whatever,

(ii) for information concerning industrial, commercial or scientific experience where the total amount payable as consideration for such information is dependent in whole or in part upon

(A) the use to be made thereof or the benefit to be derived therefrom,

(B) production or sales of goods or services, or

(C) profits,

(iii) for services of an industrial, commercial or scientific character performed by a non-resident person where the total amount payable as consideration for such services is dependent in whole or in part upon

(A) the use to be made thereof or the benefit to be derived therefrom,

(B) production or sales of goods or services, or

(C) profits,

but not including a payment made for services performed in connection with the sale of property or the negotiation of a contract,

(iv) made pursuant to an agreement between a person resident in Canada and a non-resident person under which the non-resident person agrees not to use or not to permit any other person to use any thing referred to in subparagraph (i) or any information referred to in subparagraph (ii), or

(v) that was dependent upon the use of or production from property in Canada whether or not it was an instalment on the sale price of the property, but not including an instalment on the sale price of agricultural land,

but not including

(vi) a royalty or similar payment on or in respect of a copyright,

(vii) a payment in respect of the use by a railway company of railway rolling stock as defined in the definition “rolling stock’’ in section 2 of the Railway Act,

(viii) a payment made under a bona fide cost-sharing arrangement under which the person making the payment shares on a reasonable basis with one or more non-resident persons research and development expenses in exchange for an interest in any or all property or other things of value that may result therefrom,

(ix) a rental payment for the use of or the right to use outside Canada any corporeal property, or

(x) any payment made to a person with whom the payer is dealing at arm’s length, to the extent that the amount thereof is deductible in computing the income of the payer under Part I from a business carried on by him in a country other than Canada;

it should be noted that subparagraph 212(1 )(d)(vii) was amended and clauses (A) and (B) added by SC 1974-75-76, c 26. Subsection 214(1) reads as follows:

214. (1) The tax payable under section 212 is payable on the amounts described therein without any deduction from those amounts whatever.

Counsel for the respondent submitted that the provisions of subsection 214(1) left no room for doubt as to the amount on which tax is exigible. He also referred to the provisions of subsections 215(1) and (6) which read as follows:

215. (1) When a person pays or credits or is deemed to have paid or credited an amount on which an income tax is payable under this Part, he shall, notwithstanding any agreement or any law to the contrary, deduct or withhold therefrom the amount of the tax and forthwith remit that amount to the Receiver General of Canada on behalf of the non-resident person on account of the tax and shall submit therewith a statement in prescribed form.

(6) Where a person has failed to deduct or withhold any amount as required by this section from an amount paid or credited or deemed to have been paid or credited to a non-resident person, that person is liable to pay as tax under this Part on behalf of the non-resident person the whole of the amount that should have been deducted or withheld, and is entitled to deduct or withhold. from any amount paid or credited by him to the non-resident person or otherwise recover from the non-resident person any amount paid by him as tax under this Part on behalf thereof.

Subsection 215(5) provides that the Governor in Council may make regulations to reduce the amount to be deducted or withheld but no such step was taken in this case.

The editorial comment of CCH in paragraph 26,400 in respect of subsection 214(1), in part, states as follows: “The tax of 15% (or 25% after 1975) which non-residents are obliged to pay when specified amounts are paid or credited to them by residents of Canada is computed on the gross amount so paid or credited without deduction.”* [1]

In National Trust Company Limited, Trustee of the Sam Gorman Estate-Trust v MNR, 9 Tax ABC 386; 54 DTC 33, where the identical subsection 108(1) of the old Income Tax Act was discussed, the trust company deducted depletion from certain oil royalties before computing the non-resident withholding tax. It was held there that no deduction could be made.

As difficult as the interpretation of the several sections of the Act supra may be, I am unable to find any provision therein which would permit me to hold that the appellant’s contention ought to be given effect. As Jessel, MR stated in Attorney-General v Mutual Tontine Westminister Chambers Association Ltd (1876), 1 Ex D 469:

If there is nothing to modify, alter or qualify the language which the statute contains, it must be construed in the ordinary and natural meaning of the words and sentences.

In my view the tax exigible herein is on the fixed amount of rental paid or credited without any deductions. The lessor on whose behalf the tax is withheld is not without remedy since in all cases he may file returns with the revenue department in his own country or in the State where tax was withheld to claim any adjustment due him.

The appeal accordingly is dismissed.

Appeal dismissed.