Vernon Leslie Robertson v. Minister of National Revenue, [1972] CTC 2588, 72 DTC 1489

A.J Frost:—This is an income tax appeal in respect of the appellant’s taxation years 1962 through 1967. Upon Notice of Objection duly filed, the Minister of National Revenue reconsidered the assessments and confirmed them on the ground that the penalties had been levied in accordance with subsection 56(2) of the Income Tax Act as applicable to those years. The appeal was heard on May 24, 1972 at Toronto, Ontario.

During the period 1962 to 1967 the appellant carried on a refrigerated trucking business as a sole proprietorship. On June 30, 1970 the appellant entered a plea of guilty and was convicted under paragraphs (a) and (d) of subsection 132(1) of the former Income Tax Act and paid a fine in the amount of $25,000.

By six similar Notices of Reassessment dated September 17, 1970 the Minister reassessed the appellant under section 56 of the Income Tax Act for penalties as follows:

There are two questions in issue in this appeal, the first being: can subsection 239(3) of the amended Income Tax Act be construed as applicable to the taxation years prior to 1972? The subsection reads:

(3) Where a person has been convicted under this section of wilfully, in any manner, evading or attempting to evade payment of taxes imposed by Part I, he is not liable to pay a penalty imposed under section 163 for the same evasion or attempt unless he was assessed for that penalty before the information or complaint giving rise to the conviction was laid or made.

The second question is: can the Minister impose penalties under the said subsection 56(2) if the factual situation is uncertain?

Subsection 239(3) of the new Act has replaced subsection 132(3) of the old Act, and abolishes the harsh rule enunciated in MNR v Panko, [1971] CTC 467; 71 DTC 5255, wherein it was decided by the Supreme Court of Canada that the Minister could still levy penalties under subsection 56(2) subsequent to a conviction under section 132 of the old Act because, in the Court’s opinion, subsection 56(2) provided for another kind of penalty independent from the one provided under subsection 56(1). The facts in issue in the Panko case are similar to those in issue in the present case.

Because of the Panko decision, counsel for the Minister contended that the appellant’s conviction under subsection 132(1) of the old Act did not preclude the Minister from assessing a penalty under subsection 56(2) of the old Act as the appellant’s conduct fell within the provisions of the said subsection 56(2) for the taxation years 1962 through 1967.

There is little doubt that the new statutory provisions of subsection 239(3) are more satisfactory than the ones under subsection 132(3) of the old Act. In this connection, it may be assumed that a court which convicts a taxpayer on account of violation of certain duties under the Income Tax Act, has taken into account whether or not the Minister has already imposed a penalty. To give the Minister the right to “correct” the punishment already meted out by the court by imposing a second penalty is unfair and undesirable. The new provisions are more satisfactory than the old. Accordingly, the question in issue which we are dealing with in this appeal does not concern itself so much with the interpretation of subsections 132(3) and 56(1) and (2) of the old Act as with the question of whether or not the more favourable provisions of subsection 239(3) of the amended Act should be retroactively applied.

Counsel for the appellant in his argument contended that with the enactment of the new income tax legislation and Income Tax Application Rules, 1971, section 65.1 and subsection 13(1), the Panko decision and its new and independent penalty rules passed into oblivion due to the overriding character of certain statutory provisions. He did not dispute that the assessments appealed were appealed pursuant to the law in force at the time the assessments were made as new subsection 239(3) had not been enacted. He simply submitted that subsection 239(3) of the amended Act was made applicable to pre-1972 taxation years by virtue of section 65.1 of the Income Tax Application Rules, 1971, and was made applicable to the penalties here in question by reason of subsection 13(1) of the said Rules.

Section 65.1 of the Income Tax Application Rules, 1971 reads as follows:

65.1 For greater certainty,

(a) section 9 is not applicable in respect of the repeal, by section 1, of Part V of the former Act and the substitution therefor, by that section, of Part XV of the amended Act, and

(b) in its application in respect of any offence described in subsection 239(1) of the amended Act that was committed before the coming into force of this Act, paragraph 239(1 )(f) of the amended Act shall be read as follows: . . . .

Counsel for the appellant developed his argument along the following lines. He submitted:

Section 9 of the Income Tax Application Rules, 1971, states that, subject to the provisions of the amended Income Tax Act and subject to the Income Tax Application Rules, 1971, section 1 of the amending Act (SC 1970-71-72, c 63) applies to the 1972 and subsequent taxation years. Section 1 of the amending Act repealed Parts I to IIIA and Parts V to VII of the former Income Tax Act and substituted therefor the provisions set out in the amended Income Tax Act.

However, section 65.1 of the Income Tax Application Rules, 1971, states that, for greater certainty, section 9 of the Rules is not applicable in respect of the repeal, by section 1, of the amending Act, of Part V of the former Income Tax Act and the substitution therefor, by that section, of Part XV of the amended Income Tax Act.

Therefore, the repeal of Part V of the former Act and the applicability of Part XV of the amended Act is not restricted to the 1972 and subsequent taxation year but extends to the 1971 and previous taxation years. In brief, then, this means that subsection (3) of section 132 of the former Income Tax Act is repealed applicable to taxation years prior to 1972, including the taxation years in question in this appeal, and also that subsection 239(3) of the amended Income Tax Act is applicable to taxation years prior to 1972, including the taxation years here in question. Put in another way, section 132 of the former Act is treated as if it had never existed and section 239 of the amended Act is treated as if it had always existed.

Subsection 239(3) of the amended Income Tax Act thus being applicable to the taxation years in question, he stated that the reference in that section to sections 163 and 239 and Part I of the amended Income Tax Act should be read as a reference to section 56 of the former Income Tax Act as regards convictions obtained under section 132 for evasion of taxes imposed by Part I of the former Income Tax Act.

In this regard reference should be made to subsection 13(1) of the Income Tax Application Rules, 1971, which reads as follows:

(1) Subject to this Part and unless the context otherwise requires, a reference in any enactment to a particular Part or provision of the new law shall be construed, as regards any transaction, matter or thing to which

the old law applied, to include a reference to the Part or provision, if any, of the old law relating to, or that may reasonably be regarded as relating to, the same subject matter.

“Enactment” is defined by paragraph 12(a) of the Income Tax Application Rules, 1971 as having the meaning assigned by the Interpretation Act. And subsection (1) of section 2 of the Interpretation Act, RSC 1970, c I-23, defines “enactment” as meaning an Act or regulation or any portion of an Act or regulation; and it defines “Act” as meaning an Act of the Parliament of Canada.

“New law” is defined by paragraph 12(b) of the Income Tax Application Rules, 1971 as meaning the Income Tax Act as amended by the amended Income Tax Act and any subsequent Act.

“Old law” is defined by paragraph 12(c) of the Income Tax Application Rules, 1971 as meaning the Income War Tax Act, The 1948 Income Tax Act, and the Income Tax Act as amended from time to time otherwise than by the amended Income Tax Act or any subsequent Act.

The appellant therefore submits that by virtue of subsection 13(1) of the Income Tax Application Rules, 1971 the reference in subsection 239(3) of the amended Income Tax Act to section 239 of the new law and the evasion of payment of taxes imposed by Part I of the new law is to be construed, as regards any offence committed under section 132 of the old law and any conviction obtained under that section of the old law for such an offence, to include a reference to section 132 and Part I of the old law, which relate to, or may reasonably be regarded as relating to, the same subject matter as section 239 of the new law, namely, the wilful evasion of payment of taxes.

Similarly, the reference in subsection 239(3) of the new law to section 163 of the new law is to be construed, as regards liability for penalties under section 56 of the old law and the facts giving rise to assessment of penalty under section 56 of the old law, to include a reference to section 56 of the old law, which relates to, or may reasonably be regarded as relating to, the same subject matter as section 163 of the new law, namely, penalties for tax evasion.

Section 11 of the Interpretation Act reads as follows:

11. Every enactment shall be deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.

The appellant argued that in abolishing the harsh and unfair rule enunciated in the Panko case (supra) subsection 239(3) of the amended Income Tax Act should be deemed remedial and should, when read together with section 65.1 and subsection 13(1) of the Income Tax Application Rules, 1971, be liberally construed so as to prevent a taxpayer from being punished more than once for the same transaction and, in particular, should be construed so as to save the taxpayer from paying a penalty imposed under subsection

(2) of section 56 of the former Income Tax Act for evasion or attempted evasion of payment of taxes where such taxpayer has already been convicted under section 132 of the former Income Tax Act for the same evasion or attempt.

The appellant noted that the issue is not, as the respondent appears to contend, whether subsection 163(2) of the amended Income Tax Act is applicable to pre-1972 taxation years or only to the 1972 and subsequent taxation years. Rather the issue is whether subsection 239 (3) of that Act is applicable in respect of pre-1972 taxation years and whether the references to section 239, Part I and section 163 of that Act may be read as including references to section 132, Part I and section 56 of the former Income Tax Act as regards convictions for wilful evasion of taxes and civil penalties for tax evasion under the former Income Tax Act. The appellant contended that by virtue of subsection 13(1) of the Income Tax Application Rules, 1971 this issue should be resolved in his favour.

Subsection 163(2) of the amended Act is identical to and continues subsection (2) of section 56 of the former Act. It therefore makes no difference whether a. penalty was imposed under subsection 163(2) of the amended Act or subsection (2) of section 56 of the former Act. Subsection 163(1) of the amended Act, on the other hand, describes an offence that is different from that described in subsection (1) of section 56 of the former Act and also requires the imposition of higher minimum penalty. That is the reason why subsection 62(3) of the Income Tax Application Rules, 1971 confines the applicability of subsection 163(1) of the amended Act to returns required to be filed after 1971 and makes no reference to subsection 163(2). No further inferences may be drawn.

The respondent, in his supplementary reply, has incorrectly restricted to subsection 239(1) of the amended Act the reference in section 65.1 of the Income Tax Application Rules, 1971 to Part XV of the amended Act. The reference to Part XV includes a reference to all the provisions therein, including, in particular, subsection 239(3), as well as subsection 239(1).

Moreover, it is clear, submitted counsel that subsection 239(3) of the amended Act is applicable to the taxation years in question when regard is had to paragraph (b) of section 65.1 of the Income Tax Application Rules, 1971. This provision makes applicable to any offence committed under subsection 239(1) of the amended Act before the coming into force of that Act the more tender punishment provided by subsection 132(1) of the former Act. Put in another way, but for the one exception provided by paragraph (b) of section 65.1 of the Income Tax Application Rules, 1971 all of section 239, including subsection (3), is applicable to pre-1972 taxation years.

In sum, subsection 132(3) of the old Act is replaced by subsection 239(3) of the new Act. Section 9 of the transitional rules states that the new Act applies only to the 1972 and subsequent taxation years, save certain exceptions in the new Act and transitional rules. One such exception is found in section 65.1 of the transitional rules and, accordingly, the repeal of old subsection 132(3) and the substitution of new subsection 239(3) is not restricted to the 1972 and subsequent taxation years. Therefore giving a “fair, large and liberal construction and interpretation” to best ensure the objects of the new Act (buttressed by subsection 13(1) of the Income Tax Application Rules, 1971, giving retroactivity to the remedial character of subsection 239(3) of the new Act) I find that subsection 239(3) should be interpreted to read as follows:

Where a person has been convicted under this section, or section 132 of the former Act, which relates to the same subject matter, of wilfully, in any manner, evading or attempting to evade payment of taxes imposed by Part I, he is not liable to pay a penalty imposed under section 163, or section 56 of the former Act, which relates to the same subject matter, for the same evasion or attempt unless he was assessed for that penalty before the information or complaint giving rise to the conviction was laid or made.

In view of this finding it is not necessary to consider the alternative question in issue as to whether or not the Minister of National Revenue can impose penalties under subsection 56(2) if the factual situation is uncertain. The appeal is allowed on the main issue.

Appeal allowed.