Jupson, J. (concurred in by Abbott and Ritchie, JJ.) :— During each of the years 1960 to 1965 inclusive, the respondent, William Panko, suppressed income in the total amount of $165,801.70. For this offence he was prosecuted under Section 132 of the Income Tax Act. Two informations were laid, one information containing a charge for each of the years 1960 to 1965 inclusive for having violated Section 132(1) (a), and the other information contained one charge for having violated Section 132(1) (d) for the period March 23, 1961 to June 30, 1966. Panko pleaded guilty and was fined a total of $20,000 for the violations of Section 132(1) (a) and $5,000 under Section 132(1) (d). Sec- tion 132(1) (a) deals with: false or deceptive statements in a return; Section 132(1) (d) deals with wilful evasion.
After this, the Minister gave notices of re-assessment, one for each of the years 1960 to 1965, and at the same time assessed penalties totalling $16,134.25. The sole question in this appeal is whether the Minister had authority to assess a penalty pursuant to Section 56(2) of the Income Tax Act at a time subsequent to the laying of the informations. Both the Tax Appeal Board and the Exchequer Court have found against the Minister on this point.
It. is necessary to begin with an examination of the interrelation of Section 56 of the Act and Section 132 as they stood before the, 1960 amendments made by 1960, c. 43. Before. the 1960 amendment there could be no doubt about the law. Section 56 then had no subsections. It read as follows :
56. Every person who has wilfully, in any manner, evaded or attempted to evade payment of the tax payable by him under this Part for a taxation year or any part thereof is liable to a penalty, to be fixed by the Minister, of not less than 25 per cent and not more than 50 per cent of the amount of the tax evaded or sought to be evaded.
A taxpayer who had wilfully evaded payment of tax was liable to two types of penalty :
(1) If found guilty following a prosecution under Section 132(1) (d) to a fine, fixed by the court, of not less than $25 and not exceeding $10,000, plus, in an appropriate case, an amount not exceeding double the amount of the tax evaded.
(2) A penalty assessed. by the Minister, under Section 56, of not less than 25 per cent and not more than 50 per cent of the tax evaded.
There was a limitation on the Minister” S power to assess a penalty.
Subsection (3) of Section 132 provided that, if found guilty and fined under that section, the taxpayer was not liable to pay a penalty under Section 56 for the same evasion unless such penalty had been assessed prior to the laying of the information under Section 132.
The 1960 amendments added two new subsections to Section 56. The original section was renumbered subsection: (1). Subsection (2) provided , for a penalty based upon less stringent grounds. It gave the Minister no discretion as to the amount of the penalty which was fixed at a flat 25 per cent.:The new subsection (3) ‘provided that where a taxpayer. is liable to any penalty under Section 56(2), he is not liable to a penalty under Section 56(1) in respect of the same statement or omission.
In full, the new subsections (2) and (3) read:
56. (2) Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made, or has participated in, assented to or acquiesced in the making of, a statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, as a result of which the tax that would have been payable by him for a taxation year if the tax had been assessed on the basis of the information provided in the return, certificate, statement or answer is less than the tax payable by him for the year, is liable to a penalty of 25% of the amount by which the tax that would so have been payable is less than the tax payable by him for the year.
(3) Where a person is liable to a penalty under subsection (2) - in respect of any statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, he is not liable to any penalty under subsection
(1) in respect of the same statement or omission.
Thé amending Act also expressly provided that the new subsections (2) and (3) of Section 56 apply only in respect of any statement or omission made after the coming into force of the amending. Act, namely August 1, 1960.
The amending Act also replaced subsection (3) of Section 132, but the only change was to substitute the words ‘‘subsection (1) of section 56” for the words ‘‘section 56’’ in the original Act.
‘Section 132(3) then read:
132. (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 subsection (1) of section 56 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.
I can find no ambiguity in the law as amended and I think that the Minister’s submissions are right. The new subsection (2) of Section 56 provided for a new and independent penalty to that provided under subsection (1) which continued to apply with respect to statements made prior to August 1, 1960. The other amendments were consequential.
The penalties in issue here were assessed under Section 56(2) and are not subject to the condition provided for in Section 132(3). The error in the Tax Appeal Board and in the Exchequer Court is to be found in the common conclusion that penalties must be assessed before the information or complaint under both Section 56(1) and Section 56(2) . This pays no heed to the plain terms of Section 132(3), above quoted, which limits the need for prior assessment to Section 56(1). For the above reasons, the plain terms of Section 132(3) do not create ‘‘an absurdity in the law’’ or make necessary an inference that the section must be applied not only to an assessment under Section 56(1) but also to one under Section 56(2).
I would allow the appeal with costs both here and in the Exchequer Court, set aside the judgment of the Exchequer Court and the decision of the Tax Appeal Board and restore the assessments.
LASKIN, J. (concurred in by Pigeon, J.) :—The respondent taxpayer failed to report certain income in six successive taxation years, 1960 to 1965 inclusive. In January 1967 two informations were laid against him, one including six charges under Section 132(1) (a) of the Income Tax Act and the other consisting of a single charge under Section 132(1) (d) comprehending the six taxation years. He pleaded quilty to all charges, and fines, as varied on an appeal, totalling $25,000 were levied against him. Thereafter, he was re-assessed for tax; and the Minister included in the re-assessment notices dated May 2, 1967 penalties for each of the six taxation years, pursuant to Section 56(2) of the Income Tax Act, and amounting in all to $16,134.25.
The taxpayer objected to the inclusion of the penalties, relying on Section 132(3) of the Income Tax Act, and his objection was sustained by the Tax Appeal Board and, on appeal, by Kerr, J. of the Exchequer Court. The question in this court is simply whether the Minister, on the facts herein, was authorized to impose the penalties.
Section 132(1) (a) and (d) of the Income Tax Act, so far as material, reads as follows:
132. (1) Every person who has
(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation,
(d) wilfully, in any manner, evaded or attempted to evade, compliance with this Act or payment of taxes imposed by this Act, . . .
is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction [to a fine or to the fine and imprisonment].
Having been convicted under Section 132(1) (d), the taxpayer was, ex facie, entitled, on the facts herein, to the benefit of Section 132(3) which is in these words:
132. (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 subsection (1) of section 56 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 contention of the Minister that the penalties were imposed under Section 56(2) and not under Section 56(1) would be, of course, a complete answer if there was power to exact them in this case. In order to appreciate the competing contentions of the parties, I reproduce the text of Section 56 and shall relate its history. The section now reads :
56. (1) Every person who has wilfully, in any manner, evaded or attempted to evade payment of the tax payable by him under this Part for a taxation year or any part thereof is liable to a penalty, to be fixed by the Minister, of not less than 25% and not more than 50% of the amount of the tax evaded or sought to be evaded. 1950, c. 40, s. 19.
(2) Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made, or has participated in, assented to or acquiesced in the making of, a statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, as a result of which the tax that would have been payable by him for a taxation year if the tax had been assessed on the basis of the information provided in the return, certificate, statement or answer is less than the tax payable by him for the year, is liable to a penalty of 25% of the amount by which the tax that would so have been payable is less than the tax payable by him for the year.
(3) Where a person is liable to a penalty under subsection (2) in respect of any statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, he is not liable to any penalty under subsection
(1) in respect of the same statement or omission.
Prior to 1960, Section 56 consisted of the single provision now shown as Section 56(1), and Section 132(3) similarly referred then to Section 56 simpliciter. In 1960, by Section 16 of c. 43, what are now subsections (2) and (3) of Section 56 were enacted and expressly given a prospective operation; and at the same time, by Section 31 of c. 43, Section 132(3) was amended to limit its application to Section 56(1), thus maintaining it in its previous state when it was simply Section 56.
There is no necessary connection between Section 56 and Section 132, since the Minister may exact penalties under Section 56 (extrajudicially so to speak, although subject to taxpayer challenge) without summary conviction proceedings being taken under Section’132. A connection arises however between Section 56 and Section 132(3) when there has been a conviction under Section 132(1) (d). If both are to be pursued, the penalty assess a penalty for the same conduct as expressed in Section 56(1). Wilful evasion or attempted wilful evasion of tax is redressible by a penalty under Section 56(1) and by prosecution under Section 132(1) (d). If both are to be pursued, the penalty must be assessed before the information is laid under Section 132(1) (d); otherwise the penalty cannot be exacted. although there be a conviction for which a fine or a fine and imprisonment are imposed. Section 56(3) also excludes a penalty under Section 56(1) in the situation therein set out. Since the taxpayer was convicted under Section 132(1) (d), the question arises whether the Minister can ignore Section 132(3) and impose a penalty under Section 56(2), in respect of the very conduct which offended Section 132(1) (d), by relying on Section 56(3) as well as on Section 56(2).
Proper perspective on this issue, in the light of the facts which gave rise to it, is realized by reading Section 56 and Section 132(3) together. I should say at this point that counsel for the Minister does not rely in any way on the fact that convictions were entered under Section 132(1) (a) in addition to the conviction under Section 132(1) (d). He does however contend, on the one hand, for a limited reading of Section 56(1) (despite the words ‘‘in any manner’’) so as to exclude therefrom the statements or omissions described in Section 56(2), and he seeks, on the other hand, to bring the conduct in this case, which is caught by Section 56(1) (being in the terms set out in Section 132(1) (d) ), within Section 56(2) by reason of the word “knowingly”. Thus, he would justify the imposition of the penalty under Section 56(2) by a segmented interpretation and application of Section 56(1) ; and on this basis he would invoke Section 56(3) to support the exaction of that penalty to the exclusion of a penalty under Section 56(1). In short, the Minister would exclude statements or omissions from Section 56(1) (despite the words therein ‘‘in any manner’’) but at the same time would not find “wilfully” and ‘‘knowingly’’ mutually exclusive. In my opinion, this is not only tortured construction, but it suggests also expedient shifting of position by the Minister on facts which do not warrant it and, indeed, it suggests afterthought. No problem would have arisen if the Minister (as it was open to him to do and as he had ample time to do) had assessed penalties before proceeding to prosecute under Section 132(1) (d), or if he had been content to limit prosecution to offences under Section 132(1)(a).
Counsel for the Minister conceded a possible overlap in the conduct that is referred to in Section 56(1) and in Section 56 (2) but he contended that nonetheless the liability to penalties was mutually exclusive. This, indeed, was the point taken by counsel for the taxpayer who contended that mutual exclusiveness meant a two-way street; if liability to a penalty under Section 56(2) excluded liability under Section 56(1), so would liability to a penalty under Section 56(1) exclude liability under Section 56(2); and he submitted further that the conduct comprehended by Section 56(1) was different from that under Section 56(2).
What counsel for the Minister argues, however, in amplification of his contentions already noted, is that when the Minister is faced with a factual situation which would justify a penalty either under Section 56(1) or under Section 56(2) he is obliged by reason of Section 56(3) to act under Section 56(2) in imposing a penalty, with the result that none can be imposed under Section 56(1). It is in this sense that his submission must be taken that the penalties under Section 56 are mutually exclusive; and it depends, of course, on accepting as valid the contention that the same conduct may be caught by Section 56(1) and by Section 56(2), not in the segmented sense already commented upon, but in the fuller sense that the Minister may choose to treat the conduct, although cognizable under Section 56(1), as coming under Section 56(2) which imposes a lesser maximum penalty.
The positions of the parties may be tested in a number of ways. First, if Section 56(1) and Section 56(2) are themselves mutually exclusive (in that to do something wilfully is different from doing it knowingly or through gross negligence), then Section 56(3) must be regarded as simply emphasizing that there is no overlapping. There is some support for this in the legislative scheme, since subsections (2) and (38) of Section 56 were enacted at the same time in supplement of Section 56(1). However, it may be thought strange that Section 56(3) is needed to reinforce an exclusiveness that already is evident from the formulations of Section 56(1) and Section 56(2). Hence, although I see no reason to doubt that such a reinforcement may have been provided ex abundanti cautela, I shall assume that Section 56(3), far from fortifying mutual exclusiveness, evidences an overlapping. If so, it poses the question whether the Minister is given a choice of treating the delinquency of the taxpayer under the less onerous penalty provision or whether he must always so treat it for penalty purposes.
Second, therefore, and assuming that the Minister has an election whether to treat the delinquency as falling under Section 56 (1) or under Section 56(2), he has on the facts herein treated it as falling under Section 56(1) by prosecuting to a conviction under Section 132(1) (d). On this view, there can be no assessment of a penalty under Section 56(2). It would be unthinkable for the Minister to urge that although he has prosecuted under Section 132(1) (d) without previously assessing a penalty under Section 56(1), he may recede from his election and also treat the conduct as falling within Section 56(2) for penalty purposes.
Third, assuming that, for penalty purposes, there being an overlapping application of the respective provisions to the facts herein, the Minister must act under Section 56(2), then several situations may be envisaged :
(1) The Minister lays no charges but assesses a penalty under Section 56(2). He is then precluded from assessing one under Section 56(1) but he is not precluded from prosecuting under Section 132(1) (a); and assuming he also prosecutes under Section 132(1) (d), no penalty could then be assessed under Section 56(1), whether or not there was a conviction under Section 132(1) (d); this would result from the effect of Section 56(3) or Section 132(3).
(2) If the Minister lays charges under Section 132(1) (a) and there is a conviction he may still assess a penalty under Section 56(2) and if there is liability to such a penalty (it is not precluded by laying the charges under Section 132(1) (a)), then none can be assessed under Section 56(1).
(3) The Minister lays charges under Section 132(1) (d) alone or under both Section 132(1) (d) and Section 132(1) (a) without previously assessing a penalty. That is the present case; and the argument that a penalty may still be imposed under Section 56(2) must rest on the premise of overlapping and that the Minister is obliged to act in such ease under Section 56(2). The fact that no penalty may be exacted under Section 56(1) is the result then not of Section 132(3) but of Section 56(3). The difficulty with this construction is that a taxpayer whose delinquency falls within both Section 56(1) and Section 56(2) would never be liable to a penalty under Section 56 (1) (and note that Section 56(3) speaks of a person being liable to a penalty), although it is claar under Section 132(3) that a Section 56(1) penalty is envisaged as open to assessment.
Of the three possible constructions of the relevant provisions, namely, mutual exclusiveness, election by the Minister, and mandatory duty on the Minister, the first two support the conclusion that on the facts herein the taxpayer is not liable to the penalty under Section 56(2); and the third supports the assessment of the penalty on a strained reading of the statutory Provisions.
It is certainly rational construction to view separate subsections, which define conditions upon which different penalties are assessable, as dealing with different situations unless it can clearly be seen that the same conduct may be within both. Penalty provisions are normally considered as appendant and not governing. Even if there be an overlap in Section 56(1) and Section 56(2) so that the same misconduct is embraced by both, the penalty appropriate thereto may be held to have been determined according to the provision under which enforcement proceedings are first taken. Indeed, to say that a person is liable to a penalty is merely to expose him to the risk thereof; only when the necessary action or step is taken to exact it does it become effective. Assuming, therefore, that there may be cases where the Minister has a choice in assessing under Section 56(1) or under Section 56(2), he has, in my opinion, lost that choice here (and Section 56(3) is in consequence spent) when a charge has been successfully prosecuted under Section 132(1) (d) without any penalty having been assessed before the charge was laid. The proscribed conduct having thus been brought under Section 56(1), there was no right, by reason of Section 132(3), to impose a penalty in addition to the fines.
Finally, a broader consideration moves me to the conclusion to which I would come. There is no presumption, certainly not in this case, in favour of Ministerial statutory power. If there is difficulty, as on the view most favourable to the Minister there is in this case, in reconciling connecting provisions of an enactment, that construction that permits their most compatible application in any fact situation is to be preferred.
In concluding these reasons, I feel that I should advert to an issue which emerged during the course of the argument by counsel for the Minister, namely, whether the effect of the 1960 amendments was to deprive Section 56(1) of any prospective application and whether Section 132(3) was likewise limited to past occurrences. In short, the contention appeared to be that an implied repeal was effected of these provisions, because the 1960 amendments involved a departure from the previous policy of forbidding an assessed penalty in addition to a judicially im- posed penalty after a charge and conviction under Section 132(1)(d).
Any such contention is without merit. There is no language in the legislation to support it and Section 10 of the Interpretation Act, R.S.C. 1952, c. 158, as amended (now Section 10 of the Interpretation Act, 1967-68 (Can.), c. 7) is against it. Not only is there a strong presumption against the implied repeal of legislation, but the suggested change of policy is inconsistent with the retention of the same policy under Section 131(3) of the Income Tax Act.
For all the foregoing reasons, which. differ somewhat from those below, I would dismiss the appeal with costs.
Email this Content