Evans,
JA
(concurred
in
by
Gale,
CJO
and
MacKay,
JA):—This
is
an
appeal
by
the
Attorney
General
of
Canada,
with
leave
of
the
Court,
from
the
acquittal
of
the
respondent
by
His
Honour
Judge
Graburn
on
November
1,
1970
on
three
charges,
prosecuted
on
indictment,
under
paragraphs
132(1)(a)
and
(d)
of
the
Income
Tax
Act,
of
making
false
or
deceptive
statements
in
his
income
tax
returns
for
1967
and
1968
and
wilfully
evading
payment
of
income
taxes
in
the
amount
of
$10,879.44.
The
amount
of
income
allegedly
suppressed
is
$21,433.41.
The
evidence
at
trial
consisted
of
an
agreed
statement
of
facts
together
with
schedules
and
a
statement
by
the
respondent
admitting
the
receipt
of
money
and
benefits
through
“kickback”
arrangements
with
certain
subcontractors
of
the
respondent’s
employer,
a
general
building
contractor.
The
statement
of
facts
is
as
follows:
The
accused
was
employed
by
Milne
and
Nicholls
Limited,
a
general
building
contractor
in
the
City
of
Toronto,
from
1943
to
1970.
From
1965
to
1970
he
was
a
director
of
the
Company
and
was
also
its
secretary-treasurer,
comptroller
and
general
office
manager.
In
his
capacity
as
secretary-treasurer,
comptroller
and
general
office
manager,
Poynton
was
in
charge
of
all
the
financial
operations
of
the
business
and
supervised
the
keeping
of
the
books
of
financial
record.
His
duties
included
the
approval
of
invoices
for
payment,
including
invoices
received
by
Milne
and
Nicholls
Limited
from
its
sub-contractors,
and
Poynton
was
personally
responsible
for
the
preparation
of
bills
and
invoices
sent
out
on
behalf
of
the
Company.
At
all
material
times
the
directors
were:
Roland
H
Nicholls,
president,
Winnifred
Nicholls
and
Frederick
E
Poynton,
secretary-treasurer.
Roland
H
Nicholls,
Poynton
and
William
McLaren,
the
general
manager
had
signing
authority
in
respect
of
cheques
on
behalf
of
the
Company
and
one
signature
on
a
cheque
was
sufficient.
Poynton
resigned
from
Milne
and
Nicholls
Limited
at
the
beginning
of
1970
towards
the
conclusion
of
an
investigation
conducted
by
the
Department
of
National
Revenue.
In
1967,
unknown
to
the
other
directors
of
Milne
and
Nicholls
Limited,
Poynton
arranged
with
one
Harry
Jones
for
Jones
to
submit
invoices
to
sub-contractors
employed
on
certain
jobs
in
which
Milne
and
Nicholls
Ltd
were
the
General
Contractors.
It
was
not
contemplated
that
Jones
would
perform
any
services
or
supply
any
materials
to
the
sub-contractors.
The
invoices
were
to
be
fictitious.
Upon
payment
of
the
fictitious
invoices
by
the
sub-contractors,
Jones
was
to
negotiate
the
cheques
retaining
10%
of
the
amounts
for
himself,
giving
the
balance
of
the
money
to
Poynton.
At
the
material
time
Jones
was
an
unemployed
neighbour
of
Poynton.
Gymnasium
Partitions
Company
was
a
sub-contractor
for
Milne
and
Nicholls
Limited
on
a
construction
project
for
the
MEPC
Club
in
Don
Mills.
On
October
14,
1966,
Gymnasium
issued
an
invoice
to
Milne
and
Nicholls
in
the
amount
of
$11,188.
On
the
same
date,
Milne
and
Nicholls
Limited
issued
a
cheque
signed
by
Poynton
to
Gymnasium
for
the
full
amount.
Pursuant
to
the
arrangement,
(Poynton-Jones)
Jones
submitted
an
invoice
dated
January
27,
1967
to
Gymnasium
Partitions
Company
for
$3995.00.
Gymnasium
issued
a
cheque
to
Jones
dated
February
23,
1967
for
$2,500.00
in
part
payment
of
the
invoice.
No
work
was
done
by
Jones
for
Gymnasium
or
Milne
and
Nicholls
Limited.
Jones
cashed
the
cheque
March
6,
1967
which
he
received
from
Gymnasium,
kept
$400.00
of
the
$2,500.00
for
himself
and
paid
the
remaining
$2,100.00
to
Poynton.
In
1967,
Poynton
arranged
with
one
Lapointe,
President
of
Abel
Metal
Products
Limited
that
Abel
would
accept
and
pay
invoices
from
Harry
Jones.
Abel
was
a
sub-contractor
of
Milne
and
Nicholls
Limited
at
the
time.
Subsequently,
in
1967
Jones
issued
seven
invoices
to
Abel
for
a
total
of
$17,281.00
on
jobs
on
which
Milne
and
Nicholls
Limited
was
the
general
contractor
and
Abel
a
sub-contractor.
Abel
paid
the
amount
of
the
invoices
to
Jones
and
Abel
included
the
amount
so
billed
in
its
invoices
to
Milne
and
Nicholls
Limited.
Poynton
on
behalf
of
Milne
and
Nicholls
Limited
approved
payment
in
the
amount
stated
to
Abel
and
signed
the
cheques.
Poynton
received
from
Jones
the
proceeds
of
the
cheques
issued
by
Abel
to
Jones
less
$1,728.10
which
was
retained
by
Jones.
Out
of
the
monies
received,
Poynton
paid
Lapointe
the
approximate
sum
of
$1,000.00,
with
the
result
that
Poynton
received
a
net
amount
of
$14,552.90.
In
1968,
Jones
sent
a
further
invoice
to
Abel
for
$934.00
on
a
job
on
which
Milne
and
Nicholls
Limited
was
the
general
contractor.
Abel
paid
the
amount
of
the
invoice
to
Jones
and
Abel
included
the
amount
so
billed
in
its
invoices
to
Milne
and
Nicholls
Limited.
Poynton
on
behalf
of
Milne
and
Nicholls
Limited
approved
payment
in
the
amount
stated
to
Abel
and
signed
the
cheque.
Poynton
received
from
Jones
the
sum
of
$840.60,
being
the
said
sum
of
$934.00,
less
an
amount
of
$93.40
retained
by
Jones.
In
1968,
Poynton
through
Angus
English,
at
the
time
an
estimator
employed
by
Milne
and
Nicholls,
caused
Jones
Wood
Specialties
Limited,
a
sub-con-
tractor
working
for
Milne
and
Nicholls
Limited
in
certain
construction
work
for
George
Brown
College,
to
supply
certain
materials
to
Poynton
personally
for
use
in
additions
to
Poynton’s
residence.
Jones
Wood
Specialties
Limited
invoiced
Milne
and
Nicholls
Limited
directly
for
$1,781.11
for
these
materials
and
this
invoice
was
paid
by
Milne
and
Nicholls
Limited.
The
invoice
to
Milne
and
Nicholls
Limited
purported
to
cover
additional
mill
work
in
connection
with
the
George
Brown
College
job.
Payment
on
behalf
of
Milne
and
Nicholls
Limited
was
approved
by
Poynton.
The
whole
transaction
was
effected
by
arrangement
between
English
and
one
MacNally,
an
estimator
employed
at
that
time
by
Jones
Wood
Specialties
Limited.
The
approximate
value
of
the
materials
supplied
was
$1,700.00.
In
1968,
Poynton
arranged
that
payment
would
be
made
by
Milne
and
Nicholls
Limited
for
certain
plumbing
and
heating
work
to
be
done
on
Poynton’s
residence
by
Harold
R
Stark
Limited
of
Oshawa,
Ontario.
The
work
was
done
by
Stark,
who
then
included
the
charge
for
this
work
as
an
extra
in
an
invoice
submitted
to
Milne
and
Nicholls
Limited
for
work
performed
by
Stark
in
the
construction
of
the
Oshawa
City
Hall
for
which
Milne
and
Nicholls
Limited
was
the
general
contractor
and
Stark
a
sub-contractor.
Poynton
approved
payment
of
the
invoice
on
behalf
of
Milne
and
Nicholls
Limited
and
signed
the
cheque
to
Stark.
The
total
amount
received
by
Poynton
in
1967
was
$16,652.90
and
in
1968
$4,780.51,
as
shown
on
the
attached
schedule.
On
March
4,
1971,
a
writ
was
issued
in
the
Supreme
Court
of
Ontario
by
Milne
and
Nicholls
Limited
against
Poynton.
The
writ
claimed
the
following:
“The
Plaintiff's
claim
is
for
monies
had
and
received
to
the
use
of
the
plaintiff,
from
1966
to
the
present,
damages
for
fraud,
damages
for
breach
of
fiduciary
duty,
and
an
accounting
of
the
financial
relationships
between
the
parties
and
of
the
defendant’s
dealings
to
the
plaintiff’s
account,
and
for
judgment
accordingly.”’
In
the
statement
of
claim
the
Plaintiff
claimed
inter
alia
the
sum
of
$21,433.41
being
the
amount
referred
to
above,
and
exemplary
damages.
Following
negotiations
for
settlement
of
the
action
between
the
solicitors
for
Milne
and
Nicholls
Limited
and
Poynton,
the
said
sum
of
$21,433.41
was
paid
to
the
solicitors
for
Milne
and
Nicholls
Limited
on
or
about
August
18,
1971
in
settlement
of
the
claim
made
in
the
proceedings.
The
solicitors
for
Milne
and
Nicholls
Limited
forwarded
to
the
solicitors
for
Poynton
a
signed
consent
to
the
dismissal
of
the
action
and
a
general
release,
and
arrangements
are
presently
under
way
for
the
action
to
be
dismissed
and
the
release
to
be
executed.
There
is
no
dispute
in
the
amount
involved
or
the
tax
liability
which
it
would
attract
if
it
were
found
to
be
“income’’,
nor
is
there
disagreement
as
to
the
manner
in
which
the
benefits
were
acquired
by
the
respondent.
I
have
accordingly
not
considered
it
necessary
to
set
out
either
the
statement
made
by
the
respondent
or
the
schedules
with
details
of
the
alleged
income
and
tax
thereon.
The
issue
on
appeal
is
twofold,
viz:—
(a)
whether
moneys
which
an
employee-director
has
stolen
from
his
employer
are
amounts
required
to
be
included
in
the
computation
of
the
employee-director’s
income
by
virtue
of
sections
5
and
8
and
subsection
137(2)
of
the
Income
Tax
Act,
RSC
1952,
c
148;
and
(b)
whether
the
value
of
certain
benefits
conferred
on
an
employeedirector
by
way
of
improvements
to
his
residence,
which
by
virtue
of
his
fraudulent
conduct
had
been
paid
for
by
funds
appropriated
unlawfully
from
his
employer,
are
required
to
be
included
in
the
computation
of
his
income
by
virtue
of
sections
5
and
8
and
subsection
137(2)
of
the
Income
Tax
Act.
Prior
to
launching
into
a
consideration
of
the
issues
I
wish
to
express
my
gratitude
to
all
counsel
for
the
depth
of
their
research
and
to
commend
them
for
the
excellence
of
their
presentations.
The
rule
for
the
construction
of
a
taxing
statute,
stated
by
Lord
Cairns
in
Partington
v
Attorney
General,
LR
4
HL
100
at
122,
and
followed
by
Duff,
J
in
Versailles
Sweets
Limited
v
Attorney
General
for
Canada,
[1924]
SCR
466
at
468,
is
to
the
effect
that
there
is
no
equitable
construction
in
a
taxing
statute
and
in
order
for
the
Crown
to
fix
the
subject
with
liability
for
tax
it
must
bring
the
subject
within
the
letter
of
the
taxing
enactment.
The
Crown
seeks
to
bring
the
respondent
within
sections
5
and
8
and
subsection
137(2)
of
the
Income
Tax
Act,
RSC
1952,
c
148,
the
relevant
portions
of
which
are
as
follows:
5.
(1)
Income
from
office
or
employment.
—
Income
for
a
taxation
year
from
an
office
or
employment
is
the
salary,
wages
and
other
remuneration,
including
gratuities,
received
by
the
taxpayer
in
the
year
plus
(a)
the
value
of
board,
lodging
and
other
benefits
of
any
kind
whatsoever
(except
the
benefit
he
derives
from
his
employer’s
contributions
to
or
under
a
registered
pension
fund
or
plan,
group
sickness
or
accident
insurance
plan,
medical
services
plan,
supplementary
unemployment
benefit
plan,
deferred
profit
sharing
plan
or
group
term
life
insurance
policy)
received
or
enjoyed
by
him
in
the
year
in
respect
of,
in
the
course
of,
or
by
virtue
of
the
office
or
employment;
and
.
.
.
8.
(1)
Appropriation
of
property
to
shareholders.
—
Where,
in
a
taxation
year,
(b)
funds
or
property
of
a
corporation
have
been
appropriated
in
any
manner
whatsoever
to,
or
for
the
benefit
of,
a
shareholder,
or
the
amount
or
value
thereof
shall
be
included
in
computing
the
income
of
the
shareholder
for
the
year.
137.
(2)
Indirect
payments
or
transfers.
—
Where
the
result
of
one
or
more
sales,
exchanges,
declarations
of
trust,
or
other
transactions
of
any
kind
whatsoever
is
that
a
person
confers
a
benefit
on
a
taxpayer,
that
person
shall
be
deemed
to
have
made
a
payment
to
the
taxpayer
equal
to
the
amount
of
the
benefit
conferred
notwithstanding
the
form
or
legal
effect
of
the
transactions
or
that
one
or
more
other
persons
were
also
parties
thereto;
and,
whether
or
not
there
was
an
intention
to
avoid
or
evade
taxes
under
this
Act,
the
payment
shall,
depending
upon
the
circumstances,
be
(a)
included
in
computing
the
taxpayer’s
income
for
the
purposes
of
Part
I,
The
question
is,
what
quality
must
be
attached
to
a
profit,
gain
or
benefit
before
it
can
be
characterized
as
“income”
for
the
purpose
of
taxation?
There
is
no
doubt
that
the
word
“income”
in
the
Income
Tax
Act
is
sufficiently
wide
to
include
money
other
than
that
received
from
bona
fide
transactions.
The
fact
that
profits
are
derived
from
an
illegal
business
does
not
make
them
immune
to
taxation
(Minister
of
Finance
v
Smith,
[1927]
AC
193)
and
Courts
have
been
equally
consistent
in
allowing,
as
deductions
from
income,
expenses
which
are
tainted
with
illegality.
In
ascertaining
the
net
profits
of
a
business,
items
of
expense
which
are
of
an
illegal
nature
are
nonetheless
deductible
if
they
come
within
the
provisions
of
the
Act
as
payments
made
wholly,
exclusively
and
necessarily
for
the
purpose
of
earning
the
income
sought
to
be
taxed
(Espie
Printing
Company
Limited
v
MNR,
[1960]
Ex
CR
422:
[1960]
CTC
145;
60
DTC
1087).
The
words
of
Lord
Haldane
in
the
Smith
case
(supra)
have
application
in
the
present
case
when
he
stated
at
page
197:
Nor
does
it
seem
to
their
Lordships
a
natural
construction
of
the
Act
to
read
it
as
permitting
persons
who
come
within
its
terms
to
defeat
taxation
by
setting
up
their
own
wrong.
There
is
nothing
in
the
Act
which
points
to
any
intention
to
curtail
the
statutory
definition
of
income,
and
it
does
not
appear
appropriate
under
the
circumstances
to
impart
any
assumed
moral
or
ethical
standard
as
controlling
in
a
case
such
as
this
the
literal
interpretation
of
the
language
employed.
There
being
power
in
the
Dominion
Parliament
to
levy
the
tax
if
they
thought
fit,
their
Lordships
are
therefore
of
opinion
that
it
has
levied
income
tax
without
reference
to
the
question
of
Provincial
wrongdoing.
There
do
not
appear
to
be
any
reported
Canadian
cases
in
which
the
tax
Department
sought
to
levy
a
tax
on
the
proceeds
of
money
received
by
fraud
or
other
theft
and
counsel
for
the
Attorney
General
sought
to
establish
his
case
by
analogy
and
by
reference
to
authorities
in
other
jurisdictions.
The
trial
judge
in
acquitting
the
respondent
found
that
his
action
constituted
a
fraud
against
his
employer
and
that
while
the
moneys
obtained
thereby
were
a
gain,
albeit
temporarily,
in
the
hands
of
the
respondent,
that
such
moneys
did
not
have
the
quality
of
income
and
therefore
taxable
because
the
respondent
did
not
hold
them
‘“by
entitlement
without
any
restriction
by
operation
of
law
or
otherwise
on
his
disposition,
use
or
enjoyment”
thereof
and
that
the
“said
moneys
were
clearly
impressed
with
a
trust
in
favour
of
his
employer”.
In
so
holding
counsel
for
the
taxpayer
submits
that
he
accepted
as
the
test
to
be
applied
that
stated
by
Mr
Justice
Brandeis
in
Brown
v
Helvering
(1934),
291
US
193
at
199
and
restated
by
Thorson,
J
in
Kenneth
B
S
Robertson
Limited
v
MNR,
[1944]
Ex
CR
170;
[1944]
CTC
75;
(1941-46),
2
DTC
655,
at
page
182
[91].
Is
his
right
to
it
absolute
and
under
no
restriction,
contractual
or
otherwise,
as
to
its
disposition,
use
or
enjoyment?
Both
cases
dealt
with
insurance
commissions
and
the
right
of
the
taxpayer
to
set
up
a
reserve
fund
to
provide
for
refunds
in
event
of
cancellations
and
which
reserve
fund
the
taxpayer
sought
to
have
designated
as
a
deduction
from
income.
In
Brown
v
Helvering
(supra),
the
taxpayer,
a
fire
insurance
agent,
deducted
from
accrued
commissions
and
transferred
to
a
reserve
account
an
amount
which,
on
the
experience
of
earlier
years,
would
be
returnable
because
of
cancellations.
The
question
for
decision
by
the
Court
was
whether
the
taxpayer
had
discharged
the
burden
upon
him
of
establishing
that
the
reserve
amount
fell
within
the
scope
of
a
proper
deduction
from
income
under
section
214
of
the
Revenue
Act
(US).
The
Court
held
that
it
was
not
a
proper
deduction
and
must
be
included
as
income
subject
to
taxation.
The
Court
recognized
that
each
commission
carried
with
it
an
obligation
—
a
contingent
liability
—
to
return
a
proportionate
part
in
case
of
policy
cancellation.
It
also
held
the
mere
fact
some
portion
might
have
to
be
refunded
in
some
future
year
did
not
affect
its
quality
as
income.
The
Court
continued
at
page
199:
When
received,
the
general
agent’s
right
to
it
was
absolute.
It
was
under
no
restriction,
contractual
or
otherwise,
as
to
its
disposition,
use
or
enjoyment.
The
matter
before
the
Court
was
whether
a
certain
item,
the
reserve
fund,
was
a
deduction
under
the
Act.
There
was
no
dispute
that
the
fund
was
part
of
the
taxpayer’s
gross
income.
In
the
Robertson
case
(supra),
the
taxpayer
was
an
agent
for
English
underwriters
dealing
with
American
brokers
who
sold
liability
insurance
to
employers.
The
premium
was
based
on
the
employer’s
actual
payroll
during
the
term
of
the
contract
and
could
not
be
ascertained
until
its
expiry.
An
advance
fee,
based
on
the
employer’s
estimated
payroll,
was
paid
at
the
commencement
of
the
contract
and
was
to
be
held
as
a
deposit
and
applied
to
premium
or
refunded
when
the
proper
amount
of
the
premium
was
ascertained.
There
was
also
provision
for
a
minimum
fee
which
was
not
related
to
the
payroll
amount.
The
taxpayer
set
up
in
its
books
“a
reserve
for
unearned
commissions”
to
provide
for
refunds
arising
from
cancellations
or
overestimation
of
payroll.
Some
policies
were
for
a
period
of
more
than
one
year
and
the
taxpayer
sought
to
allot
to
each
fiscal
year
the
proportion
of
commission
applicable
to
the
premium
of
that
year
even
though
the
commission
received
during
the
year
covered
premium
payments
for
more
than
one
year.
The
reserve
fund
included
part
of
the
advance
fee
which
under
the
contract
was
to
be
held
as
a
deposit
and
applied
against
the
audited
fee
in
the
annual
adjustments.
We
are
concerned
only
with
that
part
of
the
judgment
dealing
with
the
advance
fee,
a
portion
of
which,
in
excess
of
the
minimum
fee,
Thorson,
J
held
not
to
be
income.
In
his
words:
.
.
.
Can
an
amount
in
a
taxpayer’s
hands
be
regarded
as
an
item
of
profit
or
gain
from
his
business,
as
long
as
he
holds
it
subject
to
specific
and
unfulfilled
conditions
and
his
right
to
retain
it
and
apply
it
to
his
own
use
has
not
yet
accrued,
and
may
never
accrue?
In
his
opinion
the
advance
fee
(less
the
minimum
fee)
was
a
deposit
to
be
disposed
of
in
a
certain
manner
spelled
out
in
the
contract
and
since
it
was
subject
to
a
restriction
it
lacked
the
“quality
of
income”
referred
to
by
Mr
Justice
Brandeis.
In
Dominion
Taxicab
Association
v
MNR,
[1954]
SCR
82;
[1954]
CTC
34;
54
DTC
1020,
Cartwright,
J,
in
dealing
with
money
paid
pursuant
to
a
contract
by
taxicab
owners
to
the
Association
whereby
the
cab
owners
became
members
and
the
Association
provided
certain
services,
had
to
decide
whether
such
payments
of
$500
each
constituted
“profits”
and
therefore
taxable
in
the
hands
of
the
Association.
He
held
that
the
payments
did
not
represent
profits
as
they
did
not
become
the
absolute
property
of
the
Association
so
long
as
there
remained
an
unextinguished
liability
to
the
cab
owners.
He
further
states
at
page
85
[37-8,
1021]:
The
expression
“profit”
is
not
defined
in
the
Act.
It
has
not
a
technical
meaning
and
whether
or
not
the
sum
in
question
constitutes
profit
must
be
determined
on
ordinary
commercial
principles
unless
the
provisions
of
the
Income
Tax
Act
require
a
departure
from
such
principles.
In
the
case
at
bar
the
main
question
is
as
to
the
respective
rights
of
the
appellant
and
its
members
in
regard
to
the
deposits
of
$500
made
in
pursuance
of
the
contracts
in
the
form
quoted
above.
It
is
well
settled
that
in
considering
whether
a
particular
transaction
brings
a
party
within
the
terms
of
the
Income
Tax
Act
its
substance
rather
than
its
form
is
to
be
regarded.
In
my
opinion
“income”
could
be
substituted
for
“profit”
in
the
above
quotation
from
Cartwright,
J
without
doing
violence
to
the
proposition
stated
by
him.
The
appellant
contends
that
the
trial
judge
erred
in
that
the
test
applied
by
him
is
in
substance
different
from
that
stated
by
Thorson,
J
in
the
Robertson
case
(supra)
and
that
the
proper
test
is
one
which
has
regard
to
the
realities
of
the
situation
and
is
concerned
with
whether
the
taxpayer
in
question
had
in
fact
the
actual
use
and
enjoyment
of
the
amounts
in
question
and
not
with
the
ownership
of
the
income.
This
test
was
applied
in
the
majority
judgment
in
James
v
United
States
(1961),
366
US
213.
I
propose
to
deal
later
with
the
American
authorities
and
for
the
moment
concern
myself
with
the
appellant’s
submission
that
this
test
has
been
approved
by
the
Supreme
Court
of
Canada
in
Sura
v
MNR,
[1962]
CTC
1;
62
DTC
1005,
and
Curlett
v
MNR,
62
DTC
1320.
The
facts
in
the
latter
case
are
fully
reported
in
[1961]
Ex
CR
427;
[1961]
CTC
338;
61
DTC
1210
and
indicate
that
Curlett
bought
mortgages
at
a
discount
which
he
then
sold
at
face
value
to
a
private
company
in
which
he
had
absolute
control
and
undisputed
ownership.
The
trial
Court
held
that
the
bonus
money
retained
by
the
taxpayer
was
income
from
a
business
venture
carried
on
personally
by
him
and
completely
separate
from
that
carried
on
by
the
private
company.
Curlett
sought
to
escape
liability
on
the
basis
that
his
actions
constituted
a
fraud
on
the
private
company
and
that
the
proceeds
of
the
discounted
mortgages
lacked
the
essential
quality
of
income
in
his
hands,
as
his
right
to
them
was
not
absolute,
and
that
he
was
under
a
duty
to
account
and
pay
over
same
to
the
company.
The
Court
noted
that
several
years
had
passed
during
which
Curlett
had
made
no
effort
to
pay
over
the
discounts
to
the
company
which
he
controlled.
There
can
be
no
doubt
that
the
taxpayer
was
in
breach
of
his
fiduciary
duty
to
the
company
and
that
the
company
was
entitled
to
the
discounts
which
were
improperly
retained
by
Curlett.
The
Court
in
holding
that
the
moneys
constituted
income
in
the
hands
of
Curlett
did
so
in
the
face
of
his
defence
that
he
was
under
a
duty
to
account
and
that
his
entitlement
was
not
absolute.
The
principle
to
be
elicited
from
the
judgment,
as
I
apprehend
it,
is
that
strict
legal
ownership
is
not
the
exclusive
test
of
taxability
but
that
a
court
in
determining
what
is
income
for
taxation
purposes
must
have
regard
to
the
circumstances
surrounding
the
actual
receipt
of
the
money
and
the
manner
in
which
it
is
held.
The
fact
that
the
Court
stated
that
the
money
was
“income
from
a
business”
indicates
the
scope
and
extent
of
the
operation
but
does
not
affect
the
basic
finding
that
money
accruing
in
such
a
manner,
whether
as
the
result
of
an
isolated
transaction
or
from
a
series
of
transactions,
is
taxable
income.
The
Supreme
Court
of
Canada,
on
October
10,
1962,
dismissed
an
appeal
from
the
Bench
and
adopted
the
conclusion
reached
by
the
trial
judge.
In
both
the
Robertson
and
Dominion
Taxicab
cases
the
courts
were
dealing
with
moneys
subject
to
obligations
and
restrictions
set
out
in
written
contracts.
I
believe
them
to
be
readily
distinguishable
on
the
facts
from
Curlett
and
the
case
at
bar.
If
one
receives
money
under
a
trust
for
another,
he
is
under
an
obligation
to
turn
over
the
proceeds
to
his
cestui
que
trust.
If
he
does
so
then
he
fulfils
his
duty
and
no
question
of
taxability
qua
trustee
arises.
If
however,
in
breach
of
his
duty
to
account,
the
trustee
converts
to
his
own
use
he
is
taxable,
not
on
the
basis
that
the
quality
of
the
money
or
his
entitlement
thereto
has
changed,
but
on
the
basis
that
the
manner
of
holding
has
altered.
The
moneys
are
still
trust
moneys
and
the
trustee
is
liable
in
law
to
account
but
because
of
the
theft
or
conversion
the
trustee
in
reality
holds
the
money
for
his
own
account.
The
fact
that
a
defaulting
trustee
may
be
called
upon
to
return
his
ill-gotten
benefits
flows
from
his
relationship
to
his
cestui
que
trust
while
his
taxability
results
from
the
manner
in
which
he
actually
holds
the
benefit.
It
was
argued
on
behalf
of
the
respondent
that
there
is
something
repugnant
in
the
taxation
of
moneys
in
the
hands
of
a
thief
because
it
places
the
rightful
owner
in
contestation
with
government
over
money
which
properly
belongs
to
him.
Whatever
merit
there
may
be
in
such
argument,
it
hardly
lies
in
the
mouth
of
the
thief
to
advance
it.
The
solicitude
of
a
thief
for
the
financial
welfare
of
his
victim
must
be
viewed
with
suspicion
and
my
only
observation
is
that
in
practice
the
likelihood
of
such
a
contestation
would
infrequently
arise
and
in
any
event
it
is
a
legislative
rather
than
a
judicial
problem.
The
Sura
case
(supra)
deals
with
a
husband
and
wife
domiciled
in
Quebec
and,
as
there
was
no
marriage
contract,
the
law
as
to
community
property
applied
and
the
husband
and
wife
were
in
law
coowners.
The
husband
sought
to
divide
the
income
from
such
property
between
himself
and
his
wife
and
thereby
lessen
the
tax
liability.
The
Court
held
that
the
quality
of
ownership
in
the
wife
was
a
limited
right
during
the
lifetime
of
the
husband
and
that
under
the
law
of
Quebec
the
husband
alone
administers
the
community
property
and
he
alone
can
dispose
of
the
income
as,
in
law,
he
holds
it
on
his
own
account
and
not
as
an
agent
or
fiduciary
for
the
benefit
of
his
wife.
The
total
income
was
therefore
held
to
be
taxable
in
the
hands
of
the
husband
who
had
the
absolute
enjoyment
and
right
to
it.
Mr
Justice
Taschereau,
speaking
for
the
Court,
adopted
the
oft-stated
principles
that
income
tax
liability
is
imposed
on
the
person
not
on
the
property
and
that
the
statute
does
not
address
itself
to
capital
or
ownership
of
property
but
to
the
person
and
the
amount
of
tax
is
determined
by
the
benefits
the
person
receives.
The
majority
judgment
in
MNR
v
Atlantic
Engine
Rebuilders
Limited,
[1967]
SCR
477;
[1967]
CTC
230;
67
DTC
5155,
held
that
unredeemed
refundable
deposits
made
by
car
dealers
to
the
company
(which
in
fact
were
redeemed
96%
of
the
time)
were
not
trading
receipts
and
therefore
not
subject
to
inclusion
in
determining
profits
of
the
company.
The
Court
acknowledged
that
the
company
became
the
legal
owner
of
the
deposits
but
considered
that
circumstance
to
be
irrelevant
in
the
light
of
the
realities
of
the
situation.
While
this
case
is
concerned
with
trading
receipts
in
the
operation
of
a
business
it
is
plain
that
the
Court
rejected
the
theory
that
legal
ownership
per
se
created
liability
for
taxation
and
followed
the
principle
that
in
determining
taxability
an
assessment
and
analysis
of
all
the
relevant
circumstances,
including
the
rights
and
obligations,
whether
contractual
or
otherwise,
was
necessary.
Many
of
the
numerous
cases,
both
Canadian
and
English,
to
which
we
were
referred,
concerned
moneys
received
subject
to
a
trust
created
either
by
contract
or
by
implication
of
law.
In
my
view,
income,
for
the
purposes
of
the
Act,
is
not
necessarily
determined
by
such
considerations.
The
same
comment
applies
to
situations
in
which
the
question
for
determination
was
whether
a
certain
item
was
deductible
under
the
Act.
It
does
not
necessarily
follow
that
because
money
is
stolen
by
an
employee
that
the
loss
is
a
proper
deduction.
If
it
falls
within
the
definition
it
is
allowable;
otherwise
it
is
not
and
in
determining
that
question
all
the
circumstances
must
be
considered.
The
same
reasoning
applies
to
income;
the
manner
of
receipt,
the
control
over
it,
the
liabilities
and
restrictions
attaching
to
it,
the
use
made
of
it
by
the
holder,
the
person
to
whom
the
benefits
accrue.
These
are
but
some
of
the
circumstances
to
be
weighed.
I
am
of
the
opinion
that
there
is
no
difference
between
money
and
money’s
worth
in
calculating
income.
They
are
both
benefits
and
fall
within
the
language
of
sections
3
and
5
of
the
Act,
being
benefits
received
or
enjoyed
by
the
respondent
in
respect
of,
in
the
course
of,
or
by
virtue
of
his
office
or
employment.
I
do
not
believe
the
language
to
be
restricted
to
benefits
that
are
related
to
the
office
or
employment
in
the
sense
that
they
represent
a
form
of
remuneration
for
services
rendered.
if
it
is
a
material
acquisition
which
confers
an
economic
benefit
on
the
taxpayer
and
does
not
constitute
an
exemption,
eg
loan
or
gift,
then
it
is
within
the
all-embracing
definition
of
section
3.
In
view
of
the
above
finding
I
do
not
consider
it
necessary
to
refer
in
detail
to
paragraph
8(1
)(b)
and
subsection
137(2).
These
provisions
would
appear
to
refer
to
those
situations
in
which
the
taxpayer
obtains
a
benefit
with
the
knowledge
and
consent
of
the
donor-employer
and
would
have
no
application
in
the
present
factual
situation.
The
benefits
sought
to
be
taxed
did
not
accrue
to
Poynton
nor
were
they
conferred
upon
or
received
by
him
qua
director,
qua
officer
or
qua
shareholder
but
qua
thief.
I
now
turn
to
a
consideration
of
the
American
cases
in
which
the
taxing
statute
is
not
dissimilar
and
in
one
of
which
the
factual
situation
is
almost
identical
to
the
case
under
appeal.
I
believe
I
can
state
with
some
confidence
that
until
recently
the
American
decisions
suffered
from
a
lack
of
uniformity
and
that
the
earlier
decisions
of
the
United
States
Supreme
Court
in
Commissioner
of
Internal
Revenue
v
Wilcox
et
al,
327
US
404,
has
now
been
overruled
by
James
v
United
States
(supra).
Wilcox
was
decided
in
1915
and
held
that
embezzled
moneys
did
not
constitute
taxable
income
in
the
hands
of
the
embezzler
presumably
on
the
principle
that
in
order
for
a
gain
to
be
taxable
there
must
exist
in
the
taxpayer
a
claim
or
right
to
the
alleged
gain
and
that
there
must
co-exist
the
absence
of
a
definite
unconditional
obligation
to
repay
or
return
that
which
would
otherwise
constitute
a
gain.
In
Rutkin
v
The
United
States
(1952),
343
US
130,
it
was
held
by
the
US
Supreme
Court
that
money
obtained
by
extortion
was
taxable
income
in
the
hands
of
the
extortioner.
The
alleged
distinction
between
the
two
cases
appears
to
be
that
in
Wilcox
the
employer
was
unaware
that
moneys
had
been
stolen
from
him
and
upon
becoming
informed
sought
recovery
while
in
Rutkin
the
extortion
money
had
been
paid
over
with
the
knowledge
of
the
victim
and
the
Court
considered
that
in
view
of
the
illegal
activities
engaged
in
by
the
victim
there
was
slight
likelihood
that
he
would
demand
the
return
of
the
money
from
Ruikin.
The
confusion
in
American
lower
courts
which
resulted
from
their
attempts
to
reconcile
the
two
decisions
is
clearly
recorded
in
many
reported
cases.
This
unhappy
situation
continued
until
James
v
United
States
(supra)
was
decided
in
1961.
In
James,
the
taxpayer,
a
union
officer,
had
embezzled
in
excess
of
$738,000
over
a
four-year
period
from
his
employer
and
an
insurance
company
with
which
the
employer
did
business.
The
Supreme
Court,
in
a
majority
decision,
held
the
embezzled
funds
to
be
part
of
the
taxpayer’s
gross
income
for
the
year
in
which
the
embezzlement
took
place.
Mr
Justice
Black
delivered
a
strong
dissent
in
James
confirming
the
position
he
had
stated
in
Rutkin.
The
main
argument
advanced
by
the
respondent
in
this
Court
is
based
to
a
considerable
extent
on
the
dissenting
judgments
of
Mr
Justice
Black
which
held
that
embezzled
or
extorted
moneys
do
not
constitute
income
for
taxation
purposes
for
the
reason
that
the
embezzled
or
extorted
property
belongs,
and
is
known
to
belong,
to
the
rightful
owner.
These
opinions
expressed
with
great
vigour
have
the
merit
of
consistency
but
failed
to
carry
the
majority
of
his
court.
I
am
likewise
not
persuaded.
The
Wilcox
decision
had
been
emasculated
to
a
great
extent
by
Rutkin
and
whatever
authority
remained
was
overruled
in
James.
While
decisions
of
American
Courts
are
not
binding
on
me,
I
am
persuaded
that
the
ratio
decidendi
of
the
majority
opinion
in
James
v
United
States
is
sound
and
is
equally
applicable
to
the
present
case.
The
fact
that
here
the
stolen
money
was
repaid
by
Poynton
following
the
institution
of
a
civil
action
by
his
employer
does
not
affect
the
result
as
the
repayment
was
not
made
in
the
years
in
which
the
funds
were
misappropriated
and
in
which
they
were
sought
to
be
taxed.
Whether
the
moneys
would
attract
tax
if
repaid
during
the
year
in
which
they
were
misappropriated;
whether
the
taxpayer
is
entitled
to
claim
a
deduction
in
the
year
in
which
repayment
is
made
or
whether
the
employer
would
be
taxable
on
the
repayment
are
not
matters
for
consideration
and
determination
in
the
instant
case.
It
cannot
be
questioned
that
mens
rea
is
an
essential
element
to
be
proved
by
the
Crown
in
order
to
support
a
conviction:
The
Queen
v
Regehr,
[1968]
CTC
122,
and
The
Queen
v
Kipnes,
[1971]
2
CCC
56.
Although
the
question
of
mens
rea
does
not
appear
to
have
been
argued
at
trial
and
is
not
referred
to
in
the
factums
it
is
evident
from
a
careful
scrutiny
of
the
reasons
for
judgment
of
the
trial
judge
that
he
was
prepared
to
find
mens
rea
if
he
had
concluded
the
money
was
income.
As
I
have
reached
the
conclusion
that
it
is
income,
the
proper
inference
to
be
drawn
from
all
the
circumstances
is
that
the
respondent,
in
certifying
that
the
information
in
his
return
was
complete,
had
a
guilty
mind
when
he
failed
to
report
the
amounts
now
in
issue
which
he
described
as
“kickbacks”.
One
is
driven
to
the
irresistable
conclusion
that
the
conduct
of
the
respondent
in
all
the
circumstances,
including
the
absence
of
any
explanation,
was
of
such
a
nature
that
an
inference
of
guilty
intent
must
follow.
I
would,
therefore,
allow
the
appeal
of
the
Crown,
set
aside
the
verdicts
of
acquittal
and
direct
the
entry
of
a
verdict
of
guilty
on
each
count.
As
no
representations
have
been
made
with
respect
to
sentence,
I
would
defer
sentence
until
the
Court
has
had
an
opportunity
to
hear
representations
by
and
on
behalf
of
both
appellant
and
respondent.
G
W
Ainslie,
QC
and
D
Rutherford
for
the
Appellant.
L
T
Forbes
and
J
A
Ronson
for
the
Respondent.
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