WALSH,
J.:—This
is
an
appeal
from
a
decision
of
the
Tax
Appeal
Board
dated
April
8,
1970,
whereby
it
allowed
an
appeal
from
an
assessment
made
under
the
Income
Tax
Act
for
the
respondent’s
1963
taxation
year.
There
is
no
dispute
as
to
the
facts
on
which
the
assessment
was
made
and
the
action
was
submitted
for
judgment
on
the
basis
of
an
Agreed
Statement
of
Facts
and
Issues
which
was
filed
and
the
written
arguments
made
before
the
Tax
Appeal
Board,
no
witnesses
being
called.
Oral
argument
was
made
by
counsel
for
both
parties.
To
summarize
the
Agreed
Statement
of
Facts
and
Issues,
it
appears
that
respondent,
a
duly
incorporated
company
carrying
on
business,
owned
at
the
commencement
of
its
1963
taxation
year
certain
property
described
in
Classes
3
and
4
of
Schedule
B
to
the
Regulations
made
pursuant
to
the
Income
Tax
Act,
which
property
was
acquired
for
the
purpose
of
gaining
or
producing
income
from
a
hotel
business
and
when
it
was
disposed
of
during
respondent’s
1963
taxation
year,
the
proceeds
of
distribution
exceeded
the
undepreciated
capital
cost
thereof
immediately
prior
to
such
disposition.
During
the
same
1963
taxation
year,
however,
following
the
said
disposition,
respondent
acquired
further
property
described
in
the
said
Classes
3
and
8
for
the
purpose
of
gaining
or
producing
income
from
a
business
different
from
the
hotel
business.
It
computed
its
income
for
its
1963
taxation
year
on
the
basis
that,
for
the
purpose
of
Section
11(1)
(a)
and
Section
20
of
the
Income
Tax
Act
and
Part
XI
of
the
Regulations
made
thereunder,
the
property
acquired
fell
into
the
same
Classes
3
and
8
of
Schedule
B
as
the
property
disposed
of
and
that
Section
20(2)
of
the
Act
applied
to
the
determination
of
its
income
for
1963
and
Section
1101(1)
of
the
Income
Tax
Regulations
had
no
application.
Appellant,
on
the
other
hand,
in
assessing
respondent’s
1963
taxation
year,
proceeded
on
the
basis
that,
since
the
property
acquired
was
for
the
purpose
of
gaining
or
producing
income
from
a
business
different
from
that
which
was
sold
during
the
year,
by
virtue
of
Section
1101(1)
of
the
Regulations
the
property
fell
into
separate
classes
from
Class
3
and
Class
8
of
Schedule
B
to
the
Regulations
and
that,
therefore,
Section
20
(2)
of
the
Act
does
not
apply
so
as
to
reduce
the
amount
that
is
to
be
included
in
computing
respondent’s
income
for
1963
pursuant
to
Section
20(1)
and,
as
a
result,
there
was
included
in
computing
respondent’
s
income
the
sum
of
$306,237.80
by
virtue
of
Section
20(1)
in
addition
to
the
amount
declared
by
respondent
in
filing
its
income.
return.
The
decision
of
the
Tax
Appeal
Board
held
that
Section
1101(1)
of
the
Income
Tax
Regulations
was
ultra
vires
the
Governor
in
Council
and,
hence,
maintained
respondent’s
appeal
from
the
assessment.
It
is
further
agreed
that
if
the
decision
of
this
Court
should
be
that
the
said
section
is
intra
vires,
respondent’s
assessment
should
nevertheless
be
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and,
if
necessary,
re-assessment
for
the
purpose
only
of
allowing
such
further
capital
cost
allowance
under
Section
11(1)
(a)
of
the
Act
as
the
respondent
may
claim
and
the
Minister
of
National
Revenue
may
permit
in
accordance
with
the
Act
on
the
basis
that
Section
1101(1)
of
the
Regulations
is
intra
vires.
It
will
be
convenient
to
set
out
here
the
sections
of
the
Act
and
Regulations
which
affect
the
issue.
INCOME
TAX
ACT
11.
(1)
Notwithstanding
paragraphs
(a),
(b),
and
(h)
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
income
of
a
taxpayer
for
a
taxation
year:
(a)
such
part
of
the
capital
cost
to
the
taxpayer
of
property,
or
such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
regulation
;
12.
(1)
In
computing
income,
no
deduction
shall
be
made
in
respect
of
(b)
an
outlay,
loss
or
replacement
of
capital,
a
payment
on
account
of
capital
or
an
allowance
in
respect
of
depreciation,
obsolescence
or
depletion
except
as
expressly
permitted
by
this
Part,
•
20.
(1)
Where
depreciable
property
of
a
taxpayer
of
a
prescribed
class
has,
in
a
taxation
year,
been
disposed
of
and
the
proceeds
of
disposition
exceed
the
undepreciated
capital
cost
to
him
of
depreciable
property
of
that
class
immediately
before
the
disposition,
the
lesser
of
(a)
the
amount
of
the
excess,
or
(b)
the
amount
that
the
excess
would
be
if
the
property
had
been
disposed
of
for
the
capital
cost
thereof
to
the
tax-
payer,
shall
be
included
in
computing
his
income
for
the
year.
(2)
Where
one
or
more
amounts
are
by
subsection
(1)
required
to
be
included
in
computing
a
taxpayer’s
income
for
a
taxation
year
in
respect
of
the
disposition
of
depreciable
property
of
a
prescribed
class
and
the
taxpayer
has,
during
the
year
but
following
the,
dispositions,
acquired
further
depreciable
property
of
that
class,
notwithstanding
subsection
(1)
and
paragraph
(e)
of
subsection
(5),
the
following
rules
are
applicable:
(a)
if
the.
aggregate
of
the
amounts
that
would,
according
to
the
terms
of
subsection
(1),
be
included
thereunder
in
computing
his
income
is
equal
to
or
exceeds
the
amount
that
would,
according
to
the
terms
of
paragraph
(e)
of
subsection
(5),
be
the
undepreciated
capital
cost
to
him
of
depreciable
property
of
that
class
at
the
end
of
the
year
before
any
deduction
is
made
under
paragraph
(a)
of
subsection
(1)
of
section
11
for
that
year,
(i)
the
amount
to
be
included
in
computing
his
income
for
the
year
under
subsection
(1)
in
respect
of
dispositions
of
depreciable
property
of
that
class
is
that
aggregate
minus
the
amount:
that
would
be
that
undepreciated
capital
cost,
and
(ii)
the
undepreciated
capital
cost
to
him
of
depreciable
property
of
that
class
at
the
end
of.
the
year
is
nothing;
and
(b)
if
the
aggregate
of
the
amounts
that
would,
according
to
the
terms
of
subsection
(1),
be
included
thereunder
in
computing
his
income
is
less
than
the
amount
that
would,
according
to
the
terms
of
paragraph
(e)
of
subsection
(5),
be
the
undepreciated
capital
cost
to
him
of
depreciable
property
of
that
class
at
the
end
of
the
year
before
any
deduction
is
made
under
paragraph
(a)
of
subsection
(1)
of
section
11
for
that
year,
(i)
no
amounts
shall
be
included
in
computing
his
income
for
the.
year
in
respect
of
depreciable
property
of
that
class
under
subsection
(1),
and
(ii)
the
undepreciated
capital
cost
to
him
of
depreciable
property
of
that
class
at
the
end
of
the
year
before
any
deduction
is
made
under
paragraph
(a)
of
subsection
(1)
of
section
11
for
the
year
is
the
amount
that
it
would
be
according
to
the
terms
of
paragraph
(e)
of
subsection
(5)
minus
that
aggregate.
117.
(1)
The
Governor
in
Council
may
make
regulations
(a)
prescribing
anything
that,
by
this
Act,
is
to
be
prescribed
or
is
to
be
determined
or
regulated
by
regulation,
(j)
generally
to
carry
out
the
purposes
and
the
provisions
of
this
Act.
139.
(1)
In
this
Act,
(af)
"prescribed",
in
the
case
of
a
form
or
the
information
to
be
given
on
a
form,
means
prescribed
by
order
of
the
Minister,
and,
in
any
other
case,
means
prescribed
by
regulation;
(ai)
"regulation"
means
a
regulation
made
by
the
Governor
in
Council
under
this
Act;
REGULATIONS
1101.
(1)
Where
more
than
one
property
of
a
taxpayer
is
described
in
the
same
class
in
Schedule
B
and
where
(a)
one
of
the
properties
was
acquired
for
the
purpose
of
gaining
or
producing
income
from
a
business,
and
(b)
one
of
the
properties
was
acquired
for
the
purpose
of
gaining
or
producing
income
from
another
business
or
from
the
property,
a
separate
class
is
hereby
prescribed
for
the
properties
that
(i)
were
acquired
for
the
purpose
of
gaining
or
producing
income
from
each
business,
and
(ii)
would
otherwise
be
included
in
the
class.
(6)
A
reference
in
this
Part
to
classes
1
to
17
shall
be
deemed
to
include
a
reference
to
the
corresponding
separate
classes
prescribed
by
this
section.*
1105.
The
classes
of
property
provided
in
this
Part
and
in
Schedule
B
are
hereby
prescribed
for
the
purpose
of
paragraph
(a)
of
subsection
(1)
of
section
11
of
the
Act
and
section
20
of
the
Act.
The
Tax
Appeal
Board
first
considered
the
question
in
the
ease
of
Charos
v.
M.N.R.,
29
Tax
A.B.C.
190,
when
a
majority
of
the
full
Board
as
it
was
then
constituted,
although
it
dismissed
the
appeal,
gave
very
full
and
complete
consideration
to
the
possibility
that
Section
1101(1)
of
the
Regulations
might
be
ultra
vires
although
this
argument
had
not
been
raised
before
them,
and
reached
the
conclusion
that
this
was
an
issue
"
which
might
well
be
dealt
with
if
either
of
the
parties
considers
it
advisable
to
proceed
to
the
Exchequer
Court
by
way
of
appeal”.!
This
decision
refers
to
the
judgment
of
Dumoulin,
J.
in
M.N.R.
v.
Trudeau,
[1962]
C.T.C.
183,
where,
however,
the
Reasons
for
Judgment
do
not
indicate
that
the
validity
of
Section
1101(1)
of
the
Regulations
was
called
into
question.
The
question
came
before
the
Tax
Appeal
Board
again
in
the
case
of
Touzeau
v.
M.N.R.,
30
Tax
A.B.C.
301,
where
the
appeal
by
the
taxpayer
was
allowed.
Referring
to
its
observations
in
the
Charos
case,
the
Board
reached
the
conclusion,
again
in
a
decision
written
by
W.
8.
Fisher,
Q.C.,
that
Section
1101(1)
of
the
Regulations
is
ultra
vires
inasmuch
as
it
imposes
taxation
in
certain
circum-
stances
where
the
specific
provisions
of
the
Income
Tax
Act
grant
relief
from
taxation.
In
rendering
his
decision,
Mr.
Fisher
stated,
at
pages
306
and
307:
Subsection
(2)
of
Section
20
of
the
Act
(quoted
above)
provides
for
the
determination
of
the
recapture
of
any
allowance
in
respect
of
capital
cost
previously
granted
where
a
disposition
has
been
made
during
the
year
of
some
or
all
of
the
property
of
a
prescribed
class
and
additions
of
the
same
class
have
then
been
acquired
subsequent
to
the
sale
but
before
the
end
of
the
taxation
year.
Where
the
profit
on
the
disposition
of
the
class
is
equal
to
or
greater
than
the
capital
cost
of
subsequent
additions
made
prior
to
the
end
of
the
year,
the
amount
of
the
profit
to
be
added
to
taxable
income
for
the
year
is
reduced
by
the
cost
of
the
subsequent
additions,
and
only
the
net
amount
is
then
added
to
taxable
income.
This
procedure
would
leave
no
balance
of
undepreciated
capital
cost
in
the
class
to
be
written
off
in
subsequent
years.
However,
where
the
profit
on
the
disposition
of
the
class
is
less
than
the
capital
cost
of
subsequent
additions
made
to
the
class
before
the
end
of
the
taxation
year,
the
profit
on
the
said
disposition
is
deducted
from
the
cost
of
the
additions,
and
only
the
balance
of
the
cost
of
the
subsequent
additions
remains
to
be
written
off
against
profits
in
future
years.
In
my
opinion,
it
is
evident
from
the
provisions
of
subsection
(2)
of
Section
20
that,
when
all
of
the
assets
of
a
prescribed
class
are
sold
in
one
year
and
new
assets
of
the
same
class
are
subsequently
obtained
in
that
year,
the
new
assets
will
be
used
in
a
different
business
from
that
previously
carried
on
by
the
taxpayer.
Nevertheless,
the
said
subsection
provides
for
relief
from
taxation,
as
indicated
in
the
examples
given
above.
Notwithstanding
this
specific
relief
afforded
in
the
legislation,
Section
1101
of
the
Income
Tax
Regulations
proceeds
to
overrule
the
specific
provisions
enacted
by
Parliament.
It
therefore
follows
that
taxation
is
thus
being
imposed
by
the
respondent
under
the
provisions
of
the
said
Section
1101(1)
of
the
Regulations,
which
section
is
contrary
to
the
provisions
of
the
law
as
contained
in
subsection
(2)
of
Section
20
of
the
Income
Tax
Act.
These
passages
were
referred
to
in
the
decision
of
R.
S.
W.
Fordham,
@.C.
in
the
present
case.
There
was
no
appeal
from
the
Touzeau
judgment,
possibly
because
the
amounts
involved
were
small.
The
Tax
Appeal
Board
again
considered
the
question
in
the
case
of
Pevato
v.
M.N.R.,
35
Tax
A.B.C.
159,
again
allowing
the
taxpayer’s
appeal,
following
its
earlier
decision
in
the
Charos
and
Touzeau
cases.
This
judgment
did
go
to
appeal
in
the
Exchequer
Court
where
the
Minister’s
appeal
was
dismissed
by
judgment
of
Gibson,
J.,
[1965]
C.T.C.
300,
but
he
found
it
unnecessary
to
deal
with
the
question
of
law
submitted
as
to
whether
or
not
Section
1101(1)
of
the
Regulations
was
ultra
vires
since
he
reached
the
conclusion
that
the
two
properties
in
question
were
being
used
in
the
same
business.
An
appeal
against
this
judgment
was
dismissed
by
the
Supreme
Court
in
an
unreported
judgment.
As
might
be
expected,
the
Tax
Appeal
Board
has
consistently
followed
its
own
jurisprudence
in
the
absence
of
any
decision
from
a
higher
tribunal
reversing
it,
and
has
held
Section
1101(1)
of
the
Regulations
to
be
ultra
vires
in
the
cases
of
Charles
Martin
Enterprises
v.
M:N.R.
(not
reported);
H:
Jones
Building
Supplies
Limited
v.
M.N.R.
(not
reported),
Flowerday
v.
M.N.R.,
30
Tax
A.B.C.
163,
H.
J.
O
Connell
Limited
v.
M.N.R.,
42
Tax
A.B.C,
174,
Albert
Pantel
v.
M.N.R.,
32
Tax
A.B.C.
295,
Jack
Pantel
v.
M.
N.R.,
32
Tax
A.B.C.
230,
and
Cole
Associates
Limited
v.
M.N.R.,
[1969]
Tax
A.B.C.
948.
In
the
Tax
Appeal
Board
judgment
in
the
present
case,
Mr.
Fordham
comments
on
the
fact
that,
since
the
same
point
has
arisen
on
sO
many
occasions
since
the
Charos
judgment,
it
is
astonishing
that
it
has
not
yet
come
to
be
considered
by
a
higher
tribunal
but
that
the
point
has
come
squarely
before
the
Board
in
the
present
appeal
and
counsel
wish
to
see
the
matter
carried
through
to
a
final
determination.
The
admission
in
the
Agreed
Statement
of
Facts
that
the
property
acquired
in
the
year
was
so
acquired
for
the
purpose
of
gaining
or
producing
an
income
from
a
different
business
from
that
in
which
the
property
which
was
disposed
of
during
the
year
was
used
makes
it
evident,
as
the
parties
agree,
that
the
only
issue
to
be
considered
by
the
Court
is
whether
or
not
Section
1101(1)
of
the
Regulations
is
ultra
vires
as
conflicting
with
Section
20(2)
of
the
Act.
It
is
indisputable,
as
a
general
priciple
of
law,
that
the
Executive
government
cannot
by
Order
in
Council
amend
the
law
or
enact
regulations
which
may
go
beyond
the
enabling
authority
contained
in
the
statute
itself.
Such
enabling
authority
may,
for
example
in
times
of
national
emergency,
be
very
broad
as
was
held
in
the
case
of
George
Edwin
Gray
(1918),
57
8.C.R.
156,
where
Sir
Charles
Fitzpatrick,
C.J.
stated
at
page
156
:
The
practice
of
authorizing
administrative
bodies
to
make
regulations
to
carry
out
the
object
of
an
Act,
instead
of
setting
out
all
the
details
in
the
Act
itself,
is
well
known
and
its
legality
is
unquestioned.
But
it
is
said
that
the
power
to
make
such
regulations
could
not
constitutionally
be
granted
to
such
an
extent
as
to
enable
the
express
provisions
of
a
statute
to
be
amended
or
repealed;
that
under
the
constitution
Parliament
alone
is
to
make
laws,
the
Governor-in-Council
to
execute
them,
and
the
court
to
interpret
them;
that
it
follows
that
no
one
of
these
fundamental
branches
of
government
can
constitutionally
either
delegate
or
accept
the
functions
of
any
other
branch.
In
view
of
Rex
v.
Halliday,
[1917]
A.C.
260,
I
do
not
think
this
broad
proposition
can
be.
maintained.
Parliament
cannot,
indeed,
abdicate
its
functions,
but
within
reasonable
limits
at
any
rate
it
can
delegate
its
powers
to
the
executive
government.
Such
powers
must
necessarily
be
subject
to
determination
at
any
time
by
Parliament,
and
needless
to
say
the
acts
of
the
executive,
under
its
delegated
authority,
must
fall
within
the
ambit
of
the
legislative
pronouncement
by
which
its
authority
is
measured.
See
also
the
case
of
Booth
v.
The
King
(1915),.51
S.C.
R.
20,
where
Anglin,
J.,
with
whom
Davies,
J.
concurred,
adopted.
the
language
of
Maclennan,
J.A.
in
Smylie
v.
The
Queen
(1900),
27
Ont.
App.
R.
172
at
174,
when
he
stated
"..if
the
regulation
is
not
in
accordance
with
the
statute,
.
.
.
it
must
give
way
to
the
statute,
and
can
confer
no
right
beyond
what
the
statute
authorized.
..’’.
A
similar
finding
was
made
in
Belanger.
v.
The
King
(1917),
54
S.C.R.
265,
dealing
with
a
regulation
made
under
the
Government
Railways
Act.
which
permitted
the
removal
at
certain
seasons
of
the
year
of
piling
near
the
rails
at
highway
crossings
with
the
result
that
the
tracks
were
about
six
inches
above
the
roadbed
at
the
time
of
the
accident
which
gave
rise
to
the
litigation,
whereas
the
Act
itself
provided
that
the
rail
should
never
rise
above
or
sink
below
the
level
of
the
highway
by.
more
than
one
inch.
Despite
the
fact
that
the
Act
provided
that
the
regulations
made
were
taken
to
be
read
as
part
of
the
Act,
it
was
held:that
the
regulation
in
question
was
inconsistent
with
the
Act
and
must
give
way.
In
rendering
judgment,
Anglin,
J.
stated
at
page
280
that:
I
i
.
ii
.
no
regulation,
although
passed
by
the
Governor
in
Council
under
section
49,
can
be
allowed
to
override
the
explicit
requirement
of
section
16
of
the
statute.
If
no
construction
can
be
placed
upon
regulation
No.
48
which
will
bring
it
into
harmony
‘with
that
section,
it
cannot
be
regarded
as
having
been
made
within
the
authority
conferred
by
section
49,
or,
if
so
made,
it
must
be
treated
as
subordinate
to
the
precise
and
definite
prohibition
of
section
16.
These
latter
two
judgments
were
discussed
and
referred
to
with
approval
in
the
judgment
of
Thorson,
P.
in
the.
case
of
G.H.C.
Investments
Limited
v.
M.N.R.,
[1961]
C.T.C.
187.
This
judgment
bears
considerable
resemblance
to
the
present
case,
dealing
with
Sections
11(1)
(a)
and
20(1)
of
the
Income
Tax
Act
but
with
Regulation
1103
rather
than
with
Regulation
1101(1)
and
it
is
the
converse
of
the
present
case
in
that
the
taxpayer
was
attempting
to
avail
himself
to
the
provisions
of
Regulation
1103
so
as
to
minimize
taxation
whereas
in
the
present
case
it
is
the
Minister
who
is
availing
himself
of
the
provisions
of
Regulation
1101(1)
with
the
effect
of
increasing
the
taxpayer’s
assessment
for
the
year
in
question.
In
that
case
the
company
in
June
1958
sold
property
in
Classes
8,
10
and
12,
the
proceeds
of
this
disposition
being
about
$64,000
more
than
the
undepreciated
capital
cost
of
the
property
disposed
of.
The
company’s
fiscal
year
was
December
31
and
on
June
29,
1959,
one
day
before
it
was
required
to
file
its
1958
return,
it
elected
under
Section
1103
of
the
Regulations
to
include
in
Class
1
all
of
its
properties
of
Classes
2
to
12,
including
the
property
disposed
of
in
June
1958,
with
the
result
that
its
recaptured
capital
cost
allowance
was
reduced
to
about
$12,000.
The
regulation
permitted
the
election
to
be
made
before
the
last
day
on
which
the
taxpayer
was
obliged
to
file
a
return
and
referred
to
its
being
"‘effective
in
respect
of
the
taxation
year’’
and
hence
the
taxpayer
contended
that,
since
the
election
was
made
in
due
time,
it
had
retroactive
effect
to
the
beginning
of
the
1958
taxation
year
and
the
properties
when
sold
in
June
of
that
year
should
be
considered
as
Class
1
assets.
The
then
President
made
a
very
complete
analysis
of
the
effect
of
this
regulation.
He
states,
at
page
194:
.
it
is
clear,
in
my
opinion,
that
a
regulation
made
by
the
Governor
in
Council
under
an
empowering
section
of
the
Act
cannot
have
the
effect
of
allowing
a
taxpayer
in
computing
his
income
for
a
taxation
year
to
include
an
amount
that
it
less
than
that
which
the
Act
clearly
requires
him
to
include
and
thereby
enabling
him
to
reduce
the
amount
of
income
tax
that
the
Act
clearly
imposes,
and
it
is
not
permissible
to
construe
a
regulation
made
under
an
empowering
section
of
the
Act
in
such
a
way
as
to
produce
such
a
result.
He
concludes,
at
page
197:
Similarly,
Section
1103
of
the
Regulations
must
not
be
so
construed
as
to
give
the
appellant’s
election
under
it
the
effect
for
which
counsel
contended
for
such
a
construction
would
bring
it
into
conflict
with
the
clear
requirement
of
Section
20(1)
of
the
Act.
The
regulation
cannot
be
allowed
to
override
the
Act.
If
the
two
are
in
conflict
or
inconsistent
with
one
another
the
regulation
must
give
away.
That
being
so,
one
of
two
consequences
follow.
If
Section
1103
of
the
Regulations
is
to
be
read
as
having
been
made
within
the
authority
of,
and
consistent
with,
the
Act
its
construction
should
be
limited
so
that
the
election
made
by
the
appellant
under
it
on
June
29,
1959,
to
include
its
depreciable
property
otherwise
in
classes
2
to
12
in
class
1
should
be
confined
to
the
depreciable
properties
in
such
classes
that
it
had
at
the
date
of
the
election
and
should
not
be
applicable
to
the
depreciable
properties
in
classes
8,
10
and
12
which
it
disposed
of
on
June
27,
1968,
for
otherwise,
as
already
stated,
if
the
election
were
given
the
effect
that
was
contended
for
it
the
regulation
which
gave
it
such
an
effect
would
be
in
conflict
with
Section
20(1)
of
the
Act.
Alternatively,
if
it
is
not
reasonably
possible,
in
view
of
the
language
used,
to
escape
from
the
construction
of
Section
1103
of
the
Regulations
which
counsel
for
the
appellant
placed
upon
it
and
the
effect
of
the
election
made
under
it
then
Section
1103
of
the
Regulations
is
so
inconsistent
with
Section
20(1)
of
the
Act
that
it
cannot
be
regarded
as
having
been
made
within
the
authority
of
the
Act
and
effect
should
not
be
given
to
it.
This
Judgment
interpreted
the
regulation
in
such
a
way
as
to
avoid
conflict
with
the
statute,
while
holding
that
it
would
be
ultra
vires
if
this
could
not
be
done.
We
must
now
consider
whether
Section
1101(1)
of
the
Regulations
is,
in
fact,
inconsistent
with
Section
20(2)
of
the
Act
and
hence
ultra
vires,
which
is
the
issue
in
the
present
case.
Section
11(1)
(a)
of
the
Act
allows
the
deduction
of
such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
for
the
property
"‘as
is
allowed
by
regulation’’.
No
reference
is
made
here
or
elsewhere
in
the
Act
to
the
describing
of
classes
of
property
by
regulation
but
Section
20
clearly
contemplates
the
existence
of
prescribed
classes.
Section
20(5)
(e)
defines
"
‘
undepreciated
capital
cost’’
to
a
taxpayer
of
depreciable
property
of
a
prescribed
class
for
the
purposes
of
Section
20
"
‘
and
regulations
made
under
paragraph
(a)
of
subsection
(1)
of
section
11”.
The
apparent
purpose,
therefore,
of
the
classes
of
property
^prescribed”
by
the
regulations
is
as
part
of
the
scheme
for
determining
what
capital
cost
allowance
deductions
may
be
taken.
It
might
have
been
more
appropriate
if
there
had
been
a
complete
and
tidy
description
of
the
classes
in
Schedule
B
to
the
Regulations.
The
draftsman,
however,
chose
to
put
certain
parts
of
the
description
of
classes
in
the
Regulations.
Section
1102(1)*
of
the
Regulations
is
a
very
important
part
of
any
such
description.
Even
more
important
is
Section
1102(2)
of
the
Regulations.
It
is
of
the
essence
of
the
scheme
that
land
is
not
property
of
a
class
in
respect
of
which
à
capital
cost
deduction
may
be
taken.
Section
1101(1)
of
the
Regulations,
like
Section
1102(1)
and
(2),
is
merely
a
part
of
the
description
of
the
classes
of
property
for
the
purpose
of
the
Section
11(1).(a)
allowances.
Section
20(2),
which
is
the
section
which
respondent
applied
in
preparing
his
tax
return,
refers
to
the
disposition
of
depreciable
property
of
‘‘a
prescribed
class’’
and
the
acquisition
during
the
year
of
further
depreciable
property
‘of
that
class”.
Since
Section
117(1)
(a)
of
the
Act
permits
the
Governor
in
Council
to
make
regulations)
"‘prescribing
anything
that
by
this
Act
is
to
be
prescribed
or
is
to
be
determined
or
regulated
by
regulation’’
and
""prescribed”
is
defined
in
Section
139(1)
(af)
in
this
context
as
meaning
"prescribed
by
regulation’’
which
itself
is
defined
in
Section
139(1)
(ai)
as
"a
regulation
made
by
the
Governor
in
Council
under
this
Act’’;
appellant
therefore
argues
that
the
Order
in
Council
adopting
Section
1101(1)
of
the
Regulations
was
the
proper
procedure
for
establishing
a
"prescribed
class’’,
of
property
within
the
meaning
of
Section
20(2)
of
the
Act,
and
that
it
merely
establishes
a
separate
class
when
the
property
was
acquired
for
the
purposes
of
gaining
or
producing
income
from
a
different
business
from
that
for
which
the
other
property
was
acquired.
It
is
also
of
interest
to
note
that
Section
1105
of
the
Regulations
indicates
that
the
classes
of
property
provided
in
that
Part
(i.
e.
Part
XI
in
which
Section
1101(1)
is
included)
and
in.
Schedule
B
are
prescribed
for
the
purpose,
of
Sections
11(1)
(a)
and
20.
of
the
Act.
Jackett,
P.
stated
in
Gateway
Lodge
Limited
v.
M
N.R.
[1967],
2
Ex,
C.R.
326
at
332;
[1967]
C.T.C.
199
at
204:
The
overall
scheme
of
capital
cost
allowances
is
to
be
‘found
on
the
one
hand
in
the
regulations
made
under
Section
11(1)
(a)
of
the
Act,
which
provide
for
the
deductions
that
may
be
made,
and,
on
the
other
hand,
in
Section
20(1)
of
the
Act,
which
provides
for
the
"recapture"
of
allowances
previously
made
when
minus
the
initial
transportation
charges
and
retail
sales
tax
in
respect
thereof,
exceeded
$5,000,
unless
the
automobile
was
acquired
by
a
person
before
June
14,
1963,
and
has,
by
one
or
more
transactions
between
persons
not
dealing
at
arm’s
length,
become
vested
in
the
taxpayer,
or
(i)
that
was
deemed
by
section
18
of
the
Act
as
enacted
by
subsection
(1)
of
section
8
of
Chapter
32
of
the
Statutes
of
Canada,
1958
to
have
been
acquired
by
the
taxpayer
and
that
did
not
vest
in
the
taxpayer
before
the
1963
taxation
year.
(2)
The
classes
of
property
described
in
Schedule
B
shall
be
deemed
not
to
include
the
land
‘upon
which
a
property
described
therein
was
constructed
or
is
situated.
it
turns
out
that
the
actual’
overall
capital
cost
of
property
to
the
taxpayer
was
less
than
the
total
of
the
allowances
that
were
made
under
Section
11(1)
(a)
in
the
years
during
which
the
property
was
held
for
income-earning
purposes.
Appellant’s
counsel
argued
that
the
right
to
prescribe
classes
of
property
is
not.
limited
to
physical
classes
referred
to
as
property
of
the
same
kind,
such
as,
for
example,
several
brick
buildings
owned
by.
the
same
taxpayer”
as
it
was
described
in
the
Charos
case
judgment
of
the
Tax
Appeal
Board
(supra),
but
that
classes
prescribed
in
the
Regulations
have.
also
been
based
on
the
date
of
acquisition
(Classes
3(g),
4(a),
5,
6(h)
and
(i)),
the
nature
of
taxpayer’s
business
(Class
19),
the
type
of
business
in
which
the
property
is
to
be
used
(Classes
10(g),
(k)
and
(1)),
and
even
on
the
cost
of
the
property
(Classes
12(c),
(e),
and
(h)).
Furthermore,
Part
XVII
of
the
Regulations
provides
for
a
different
method
of
determining
capital
cost
allowance
for.
persons
engaged
in
farming
and
fishing,
Classes
20
to
24
also
are
specific
examples
of
classification
of
property
according
to
its.
use..
As
appellant’s
counsel
points
out
in
his
written
argument,
Section
1101(1)
of
the
Regulations
is
only
one
of
a
rather
complex
code
dealing
generally
with
the
tax
consequences
of
acquiring,
owning
or
disposing
of
depreciable
property.
It
is
evident,
however,
that
if,
on
the
interpretation
of
the
Act,
the
only
classification
of
property
that
could:
be
made
by
regulations
was
a
classification
based
upon
its
physical
characteristics,
then
the
fact
that
the
Regulations
have
adopted
a
great
variety
of
other
classifications
to
deal
with
particular
situations
could
not
in
itself
make
Section
1101(1)
of
the
Regulations
intra
vires
any
more
than
the
many
other
similar
sections
of
the
Regulations
based
on
such.
classifications,
but
it.
does
at
least
establish
that
Section
1101
(
1
)
is
not
in
itself
a
very
exceptional
regulation,
in
making
a
distinction
based
on
the
use
to
which
the
property
is
put.
Moreover,
this
case
differs
from
that
of
G.H.C.
Investments
Limited
n.
M.N.R.
(supra)
in
that
that
ease
did
not
permit
a
regulation
to
be
so
interpreted
as
to
enable
a
taxpayer
to
apply
it
with
retroactive
effect
to
avoid
payment
of
part
of
the
recaptured
capital
cost
allowance
on
which
he
would
otherwise
have
been
taxed,
whereas
in
the
present
case
Section
1101(1)
of
the
Regulations
is
not
being
applied
by
the
Minister
with
retroactive
effect
so
as
to
force
the
taxpayer
to
pay
recaptured
capital
cost
allowance
which
he
would
otherwise
avoid
by
virtue
of
Section
20(2)
of
the
Act,
for
the
regulation
was
in
effect
at
the
relevant
times
when
the
taxpayer
disposed
of
one
property
and
subsequently
acquired
the
other
property
during
the
same
taxation
year
and
he
must
be
deemed
to
have
been
aware
of
the
consequences.
Furthermore,
as
appellant’s
counsel
points
out,
while
in
the
cases
in
which
the
validity
of
Section
1101(1)
of
the
Regulations
has
been
attacked
its
application
has
worked
out
in
a
manner
unfavourable
to
the
taxpayer
in
the
particular
taxation
year,
it
does
not
follow
that
the
purpose
of
prescribing
separate
classes
based
on
use
is
to
defeat
Section
20(2).
In
some
cases
its
application
could
even
work
out
to
the
advantage
of
the
taxpayer
as
in
the
case
where
a
taxpayer
has
disposed
of
all
of
the
property
of
a
prescribed
class
and
wishes
to
apply
Section
1100(2)
of
the
Regulations
relating
to
terminal
loss
which
provides:
(2)
Where,
in
a
taxation
year,
otherwise
than
on
death,
all
property
of
a
prescribed
class
that
had
not
previously
been
disposed
of
or
transferred
to
another
class
has
been
disposed
of
or
transferred
to
another
class
and
the
taxpayer
has
no
property
of
that
class
at
the
end
of
the
taxation
year,
the
taxpayer
is
hereby
allowed
a
deduction
for
the
year
equal
to
the
amount
remaining,
if
any,
after
deducting
the
amounts,
determined
under
sections
1107
and
1110
in
respect
of
the
class,
from
the
undepreciated
capital
cost
to
him
of
property
of
that
class
at
the
expiration
of
the
taxation
year.
He
submitted
three
examples
to
show
how
this
could
work
out
to
the
advantage
of
a
taxpayer,
which
we
need
not
go
into
in
detail
here
since,
in
any
event,
the
validity
of
a
regulation
cannot
depend
on
the
resulting
consequences
of
its
application.
As
the
judgments
of
the
Tax
Appeal
Board,
however,
holding
Section
1101(1)
of
the
Regulations
to
be
ultra
vires
seem
to
be
based
to
some
extent
on
the
fact
that
this
regulation
deprives
the
taxpayer
of
certain
rights
given
him
by
Section
20(2)
of
the
Act,
it
is
of
interest
to
note
that
the
application
of
this
regulation
need
not
necessarily
work
out
to
the
disadvantage
‘of
the
taxpayer.
Appellant’s
counsel
further
argued
that
the
classification
of
depreciable
property
based
on
the
separation
of
investment
property
from
business
property
or
the
separation
of
property
used
in
one
business
from
property
used
in
another
business
is
not
illogical
nor
inconsistent
with
other
provisions
of
the
Act,
such
as
Section
139
(la)
which
in
paragraph
(a)
refers
to
a
taxpayer’s
income
from
a
business,
employment,
property
or
other
source
of
income,
and
makes
the
assumption
that
during
the
tax
year
he
had
no
income
except
from
that
source
or
sources,
and
in
paragraph
(b)
refers
to
the
business
carried
on
by
a
taxpayer
or
the
duties
performed
by
him
being
carried
on
partly
in
one
place
and
partly
in
another
and
makes
the
assumption
that
during
the
taxation
year
he
had
no
income
except
from
the
part
of
the
business
that
was
carried
on
or
the
duties
performed
in
the
particular
place,
and
Section
27(1)
(e)
(iii)
which
refers
to
no
amount
being
deductible
in
respect
of
losses
from
the
income
of
any
year
except
to
the
extent
of
the
lesser
of:
(A)
the
taxpayer’s
income
for
the
taxation
year
from
the
business
in
which
the
loss
was
sustained
and
his
income
for
the
taxation
year
from
any
other
business,
or
.
.
.
Both
these
sections
seem
to
make
some
distinction
where
a
taxpayer
carries
on
more
than
one
different
business
or
a
business
in
two
different
places,
and
appellant’s
counsel
argues
that
it
can
be
inferred
from
this
that
the
Act
itself
recognizes
the
principle
that
property
can
properly
be
classified
on
the
basis
of
the
business
in
which
it
is
being
used,
or
perhaps
even
the
location
of
the
property,
rather
than
merely
according
to
the
nature
of
the
property
itself.
Respondent’s
counsel
countered
this
by
arguing
that
Section
27(5)
of
the
Act
permits
a
loss
carry
forward
unless
there
has
not
only
been
a
change
in
control
of
the
corporation
but
also
a
change
in
the
nature
of
its
business,
and
therefore
that
the
nature
of
the
business
in
which
a
property
is
being
used
is
not
under
the
Act
deemed
in
itself
to
be
a
sufficient
criterion
for
classification
of
it.
While
these
attempts
to
draw
inferences
from
other
sections
of
the
Act
dealing
with
different
situations
are
not
without
interest,
they
are
not
very
helpful
in
enabling
a
conclusion
to
be
reached
as
to
whether
Section
20(2)
of
the
Act
has,
in
effect,
been
contravened
by
Section
1101(1)
of
the
Regulations.
Appellant’s
counsel
further
argued
that
Section
1101(1)
of
the
Regulations
is
effective
during
the
whole
life
of
the
business
and
does
not
purport
to
come
into
operation
only
when
Section
20(2)
would
otherwise
be
applicable,
and
hence
it
does
not
come
into
conflict
with
that
section
since
Section
20
only
applies
when
property
of
a
prescribed
class’’
is
disposed
of.
There
is
some
force
to
this
argument
although
it
would
not
in
itself
justify
Section
1101(1)
of
the
Regulations
if,
in
fact,
it
did
come
into
conflict
with
Section
20(2)
of
the
Act
when
the
property
was
disposed
of.
Respondent’s
counsel
draws
an
argument
from
the
provisions
of
Section
20(11)
of
the
Act
which
reads:
(11)
For
the
purposes
of
this
section
and
regulations
made
under
paragraph
(a)
of
subsection
(1)
of
section
11,
a
vessel
in
respect
of
which
any
conversion
cost
is
incurred
after
the
coming
into
force
of
this
subsection
shall,
to
the
extent
of
the
conversion
cost,
be
deemed
to
be
included
in
a
separate
prescribed
class.
This
subsection
was
added
by
S.C.
1966-67,
c.
91.
Respondent’s
counsel.
argued
that
if
this
could
have
been
done
by
regulation
there
would
have
been
no
need
to
legislate
so
as
to
create
a
separate
prescribed
class.
While
this
argument
is
interesting,
I
do
not
believe
it
is
conclusive
as
to
the
validity
of
Section
1101(1)
of
the
Regulations.
Even
when
Parliament
has
given
the
Executive
government
the
right
to
make
regulations
for
a
specified
purpose,
it
has
not
in
any
way
derogated
from
its
right
to
legislate
for
the
same
purpose,
and
I
think
it
would
perhaps
be
going
too
far
to
infer
that,
because
it
was
decided
to
insert
Section
20(11)
in
the
Act
by
an
amendment
thereto,
this
could
not
have
been
done
by
Order
in
Council
adopting
a
regulation
to
this
effect,
and
then
to
deduce
therefrom
that
the
same
would
apply
in
the
case
of
the
present
Section
1101(1)
of
the
Regulations.
The
Regulations
have,
as
I
have
indicated,
prescribed
classes
of
depreciable
property
in
the
course
of
fixing
the
allowances
under
Section
11(1)
(a).
These
are
the
only
classes
of
depreciable
property
that
have
been
prescribed
by
regulation
made
under
the
Income
Tax
Act.
They
fit
the
words
of
Section
20(1)
and
(2).
They
are
certainly
valid
for
the
purpose
of
Section
11(1)
(a)
and,
in
my
view,
they
are
no
less
valid
for
Section
20(1)
and
(2).
As
I
appreciate
the
contrary.
argument,
it
assumes
that
Section
20(2)
was
enacted
in
relation
to
the
classes
as
prescribed
by
Schedule
B
to
the
Regulations.
If
this
were
so,
if
for
example
Section
20(2)
had
expressly
referred
to
the
classes
as
defined
by
Schedule
B,
it
would
clearly
be
beyond
the
powers
of
the
Governor
in
Council
to
amend
those
classes.
However,
once
it
is
realized
(a)
that
Section
20(2)
refers
to
the
classes
as
prescribed
by
the
Regulations,
and
(b)
that
Section
1101(1)
of
the
Regulations
is
an
integral
part
of
the
definition
of
classes
contained
in
the
Regulations,
there
can
be
no
question
of
any
conflict
between
the
Act
and
the
Regulations
and
therefore
no
question
of
invalidity.
After
a
careful
examination
of
the
arguments
presented,
both
oral
and
written,
of
the
judgment
of
the
Tax
Appeal
Board
in
the
present
case
and
its
earlier
judgments
in
the
cases
of
Charos
and.
Touzeau
and
the
reasons
therefor,
I
have
reached
the
conclusion
that
Section
1101(1)
of
the
Regulations
is
a
proper
exer-
cise
of
the
implied
power
to
prescribe
classes
by
Order
in
Council
within
the
scope
of
the
enabling
power
of
the
Income
Tax
Act,
and
while
it
does
limit
the
effect
of
Section
20(2)
of
the
Act
in
the
situations
to
which
it
applies,
it
is
not
in
contradiction
to
this
section
and
hence
is
not
ultra
vires.
/
Having
reached
this
conclusion,
appellant’s
appeal
must
succeed
but
the
Minister
has
agreed,
in
this
event,
to
reconsider
and,
if
necessary,
re-assess
respondent’s
income
for
1963
in
order
to
allow
respondent
such
further
capital
cost
allowance
under
Section
11(1)
(a)
of
the
Income
Tax
Act
as
it
may;
claim
and
the
Minister
may
permit
on
the
‘basis
that
Section:
1101(1)
of
the
Regulations
i
is
intra
vires.
Respondent
‘s
counsel
contended
that,
in
the
event
that
the
Court
found
Section
1101(1)
of
the
Regulations
to
be
intra
vires,
the
Minister’s
appeal
should
nevertheless
be
dismissed
since
otherwise
the
matter
could
not
be
referred
back
to
the
Minister
for
re-assessment
as
it
would
be
‘inconsistent
to
allow
the
appeal
but
nevertheless
refer
the
matter
back
for
such
re-assessment.
The
sole
issue
between
the
parties
was
the
validity
of
Section
1101(1)
of
the
Regulations,
and
since
I
have
found
it
to
be
intra
vires,
the
Minister
ha's
succeeded
in
his
appeal
and
is
entitled
to
judgment
i
in
his
favour
with
costs.
It
isaclear,
however,
that:
if
respondent
is
assessed
for
the
full
recaptured
capital
cost
allowance
arising
out
of
the
sale
of
the
first
property
during
the
year,
and
the
undepreciated
capital
cost
of
the
property
acquired
is
not
to
be
reduced
by
this
amount,
it
is
entitled
to
claim
such
capital
cost
allowance
as
the
Act
and
Regulations
permit
on
the
whole
amount
of
the
capital
cost
of
the
property
acquired,
instead
of
on
the
reduced
amount
used
in
its
return
as
the
result
of
thé
application
by
it
of
Section
20(2)
of
the
Act,
without
taking
into
consideration
Section
1101(1)
of
the
Regulations:
and,
therefore,
a
re-assessment
is
necessary,
as
the
Minister.
concedes.
Judgment
will
therefore
be
rendered
allowing
appellant’s
appeal
and
declaring
Section
1101(1)
of
the
Regulations
made
pursuant
to
the
Income
Tax
Act
infra
vires
the
Governor
in
Council,
but
referring
the
assessment
for
the
1963
taxation
year
of
respondent
back
to
the
Minister
for
re-assessment
on
the
basis
outlined.
above,
the
Whole
with
cost
in
favour
of
appellant.
,,
.
,
,
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