CATTANACH,
J.:—This
is
an
appeal
from
a
decision
of
the
Tax
Appeal
Board
((1965),
39
Tax
A.B.C.
346)
whereby
the
appellant
was
held
to
be
associated
with
another
corporation,
namely,
Heiland
Exploration
Canada
(1959)
Limited
and
therefore
taxable
as
associated
under
Section
39
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
and
amendments,
for
the
appellant’s
1961,
1962
and
1963
taxation
years.
At
the
outset
of
the
hearing
the
appellant
abandoned
its
appeal
from
the
Board’s
decision
with
respect
to
the
assessment
for
its
1961
taxation
year
so
that
the
present
appeal
relates
only
to
the
assessments
by
the
Minister
for
the
appellant’s
1962
and
1963
taxation
years.
For
the
purpose
of
this
appeal
the
parties
reached
an
agreement
as
to
the
issue
and
facts
which
reads
as
follows
:
1.
The
issue
to
be
decided
in
each
of
the
several
appeals
is
whether
the
Appellant
was
or
was
not
associated
with
Heiland
Exploration
Canada
(1959)
Limited
(herein
referred
to
as
“Heiland”),
in
the
relevant
taxation
year
within
the
definition
contained
in
subsection
(4)
of
Section
39
of
the
Income
Tax
Act.
2.
The
following
facts
relative
to
the
issue
to
be
decided
are
admitted:
—
(a)
Heiland
was
incorporated
under
the
Companies
Act
of
the
Province
of
Alberta
on
1
June,
1954
and
its
fiscal
period
ended
on
31
May
in
each
year.
(b)
The
Appellant
was
incorporated
under
the
Companies
Act
of
the
Province
of
Alberta
on
19
December,
1960
and
its
fiscal
period
ended
on
31
March
in
each
year.
(c)
At
the
date
of
the
Appellant’s
incorporation
and
throughout
the
period
from
that
date
until
21
July,
1962
all
of
the
issued
and
outstanding
shares
of
the
capital
stock
of
Heiland
were
owned
by
Mr.
Ira
C.
Mayfield
and
his
wife,
Loma
B.
Mayfield,
in
the
following
portions
:
|
Ira
C.
Mayfield
|
19
shares
|
|
Loma
B.
Mayfield
|
1
share
|
(d)
Annexed
hereto
and
marked
as
Appendix
“A”
to
this
agreement
is
a
true
copy
of
the
Appellant’s
Memorandum
of
Association
as
it
read
at
all
times
material
to
these
appeals.
(e)
On
the
day
following
the
date
of
the
Appellant’s
incorporation,
Mr.
Ira
C.
Mayfield
and
his
wife,
Loma
B.
May-
field,
were
named
as
Directors
of
the
Appellant
and
they
continued
to
be
the
only
Directors
of
the
Appellant
at
all
times
material
to
these
appeals.
(f)
On
21
December,
1960,
Mr.
Ira
C.
Mayfield
and
his
wife,
Lorna
B,
Mayfield,
each
became
the
owner
of
500
common
shares
of
the
capital
stock
of
the
Appellant
and
up
to
and
including
the
29th
day
of
December,
1960,
Mr.
and
Mrs.
Mayfield
were
the
only
shareholders
of
the
Appellant.
(g)
On
30
December,
1960,
500
Class
“B”
shares
of
the
capital
stock
of
the
Appellant
were
allotted
to
Mr.
J.
C.
Fuller
and
500
Class
“B”
shares
were
allotted
to
Mr.
V.
Van
Sant,
Jr.,
neither
of
whom
was
related
to
Mr.
Ira
C.
May-
field
or
to
his
wife,
Loma
B.
Mayfield.
(h)
Throughout
the
period
commencing
on
30
December,
1960
and
ending
on
20
July,
1962,
the
only
issued
and
outstanding
shares
of
the
capital
stock
of
the
Appellant
were
owned
as
follows:
|
Name
of
Owner
|
Common
Shares
|
Class
“B”
Shares
|
|
Ira
C.
Mayfield
|
500
|
NIL
|
|
Loma
B.
Mayfield
|
500
|
NIL
|
|
J.C.
Fuller
|
NIL
|
500
|
|
V.
Van
Sant
|
NIL
|
500
|
|
Total
Shares
|
1,000
|
1,000
|
3.
If
it
be
decided
that
the
Appellant
was
associated
with
Heiland
in
a
taxation
year,
the
appeal
from
the
assessment
for
that
taxation
year
of
the
Appellant
should
be
dismissed.
4.
If
it
be
decided
that
the
Appellant
was
not
associated
with
Heiland
in
a
taxation
year,
the
appeal
from
the
assessment
for
that
taxation
year
of
the
Appellant
should
be
allowed
and
the
matter
should
be
referred
back
to
the
Respondent
to
reassess
the
Appellant
for
that
year
at
the
rates
of
tax
prescribed
in
subsection
(1)
of
Section
39
of
the
Income
Tax
Act.
As
recited
in
paragraph
2(d)
there
is
appended
to
the
agreement
as
to
issue
and
facts
a
true
copy
of
the
appellant’s
Memorandum
of
Association.
The
portions
of
the
Memorandum
pertinent
to
this
appeal
are
those
reciting
the
rights
and
conditions
attaching
to
the
common
shares
and
Class
“B”
shares
which
read
as
follows:
The
said
Class
“B”
shares
shall
confer
the
right
to
notice
of
all
meetings
of
the
Company
and
the
right
to
vote
with
the
ordinary
(common)
shareholders
and
to
have
one
vote
for
each
class
“B”
share
held
by
them”.
The
said
Class
“B”
shares
shall
be
redeemable
in
whole
or
in
part
thereof
at
the
option
of
the
Directors
upon
any
dividend
date
upon
the
company
giving
sixty
days
notice
in
writing
of
such
redemption
and
shall
be
redeemable
at
par
plus
a
sum
equal
to
all
unpaid
preferential
dividends
in
full
to
the
date
of
redemption.
In
the
event
of
such
redemption
being
in
part
the
same
shall
be
by
lot.
By
agreement
a
true
copy
of
the
appellant’s
Articles
of
Association
as
they
read
at
all
times
material
to
this
appeal
were
introduced
in
evidence.
During
argument
reference
was
made
to
paragraphs
9
and
49
thereof
reading
as
follows:
9.
The
shares
shall
be
under
the
control
of
the
Directors
who
by
unanimous
resolution
and
not
otherwise
may
allot
or
otherwise
dispose
of
the
same
to
such
persons
and
upon
such
terms
and
conditions
and
at
such
times
as
the
directors
think
fit.
49.
In
the
case
of
an
equality
of
votes,
either
on
a
show
of
hands
or
on
a
poll,
the
Chairman
of
the
meeting
at
which
the
show
of
hands
takes
place
on
at
which
the
poll
is
demanded,
as
the
case
may
be,
shall
not
be
entitled
to
a
further
or
casting
vote.
The
shareholdings
in
the
appellant
and
Heiland
are
illustrated
in
graphic
form
as
follows:
The
sole
issue
in
the
present
appeal
is,
as
stated
in
the
agreement
as
to
issue
and
facts,
whether
the
appellant
was
or
was
not
associated
with
Heiland
in
the
appellant’s
1962
and
1963
taxation
years.
Section
39(1)
provides
that
the
tax
payable
by
a
corporation
under
Part
I
of
the
Income
Tax
Act
is
18
per
cent
of
the
first
$35,000
taxable
income
and
47
per
cent
of
the
amount
by
which
the
income
subject
to
tax
exceeds
$35,000.
However,
subsections
(2)
and
(3)
of
Section
39
provide
that
when
two
or
more
corporations
are
associated
with
each
other
the
aggregate
of
the
amount
of
their
incomes
taxable
at
18
per
cent
is
not
to
exceed
$35,000.
Section
39(4)
defines
the
circumstances
under
which
a
corporation
is
associated
with
another
and
reads
as
follows:
39.
(4)
For
the
purpose
of
this
section,
one
corporation
is
associated
with
another
in
a
taxation
year
if,
at
any
time
in
the
year,
(a)
one
of
the
corporations
controlled
the
other,
(b)
both
of
the
corporations
were
controlled
by
the
same
person
or
group
of
persons,
(c)
each
of
the
corporations
was
controlled
by
one
person
and
the
person
who
controlled
one
of
the
corporations
was
related
to
the
person
who
controlled
the
other,
and
one
of
those
persons
owned
directly
or
indirectly
one
or
more
shares
of
the
capital
stock
of
each
of
the
corporations,
(d)
one
of
the
corporations
was
controlled
by
one
person
and
that
person
was
related
to
each
member
of
a
group
of
persons
that
controlled
the
other
corporation,
and
one
of
those
persons
owned
directly
or
indirectly
one
or
more
shares
of
the
capital
stock
of
each
of
the
corporations,
or
(e)
each
of
the
corporations
was
controlled
by
a
related
group
and
each
of
the
members
of
one
of
the
related
groups
was
related
to
all
of
the
members
of
the
other
related
group,
and
one
of
the
members
of
one
of
the
related
groups
owned
directly
or
indirectly
one
or
more
shares
of
the
capital
stock
of
each
of
the
corporations.
The
word
‘‘controlled’’
as
used
in
the
above
subsection
has
been
held
by
the
President
of
this
Court
in
Buckerfield’s
Limited
et
al.
v.
M.N.R.,
[1965]
1
Ex.
C.R.
229;
[1964]
C.T.C.
504,
to
mean
the
right
of
control
that
rests
in
the
ownership
of
such
a
number
of
shares
as
carries
with
it
the
right
to
a
majority
of
the
votes,
i.e.
de
jure
control
and
not
de
facto
control.
This
interpretation
by
the
President
was
adopted
with
approval
by
the
Supreme
Court
of
Canada
in
M.N.R.
v.
Dworkin
Furs
(Pembroke)
Ltd.
et
al.,
[1967]
C.T.C.
50.
The
contention
on
behalf
of
the
Minister
is,
as
I
understood
it,
that
each
of
the
corporations
here
involved,
namely,
the
appellant
and
Heiland,
was
controlled
by
a
‘‘related
group’’
and
are
accordingly
associated
within
the
meaning
of
Section
39(4)
(e).
It
was
conceded
by
counsel
for
the
appellant
that
(e)
is
the
applicable
paragraph
of
subsection
(4)
of
Section
39
but
he
did
not
concede
that
the
appellant
was
controlled
by
a
related
group.
It
is
not
disputed
that
Mr.
and
Mrs.
Mayfield,
by
virtue
of
their
ownership
of
all
the
issued
and
outstanding
shares
of
Heiland
in
the
respective
numbers
of
19
and
1,
controlled
that
corporation.
If
the
test
propounded
in
the
Buckerfield
s
case
(supra)
was
the
test
here
applicable
then
there
would
be
no
question
that
the
appellant
was
not
controlled
by
Mr.
and
Mrs.
Mayfield
because
between
them
they
owned
only
50
per
cent
of
the
issued
and
outstanding
voting
shares
of
the
appellant
and
therefore
did
not
command
a
majority
of
the
votes.
There
is
no
question
between
the
parties
that
Mr.
and
Mrs.
Mayfield
constituted
a
‘‘related
group’’
within
the
meaning
of
those
words
as
defined
in
the
Income
Tax
Act.
Subsection
(4a)
of
Section
39
reads
as
follows:
(43.)
For
the
purpose
of
this
section,
(a)
one
person
is
related
to
another
person
if
they
are
“related
persons”
or
persons
related
to
each
other
within
the
meaning
of
subsection
(5a)
of
section
139;
(b)
“related
group”
has
the
meaning
given
that
expression
in
subsection
(5c)
of
section
139;
and
(c)
subsection
(5d)
of
section
139
is
applicable
mutatis
mutandis.
Subsection
(5)
of
section
139
reads
as
follows:
(5)
For
the
purposes
of
this
Act,
(a)
related
persons
shall
be
deemed
not
to
deal
with
each
other
at
arm’s
length;
and
(b)
it
is
a
question
of
fact
whether
persons
not
related
to
each
other
were
at
a
particular
time
dealing
with
each
other
at
arm’s
length.
Relationship
is
defined
in
subsection
(5a)
of
Section
139
reading
in
part
as
follows:
(5a)
For
the
purpose
of
subsection
(5),
(5c)
and
this
subsection,
“related
persons”,
or
persons
related
to
each
other,
are
(a)
individuals
connected
by
blood
relationship,
marriage
or
adoption
;
Subsection
(50)
of
Section
139
reads
in
part
as
follows:
(So)
In
subsection
(5a),
(5d)
and
this
subsection
(a)
“related
group”
means
a
group
of
persons
each
member
of
which
is
related
to
every
other
member
of
the
group
;
.
.
.
The
contention
of
the
Minister
is
that
Mr.
and
Mrs.
Mayfield
are
a
related
group
of
persons
who
are
deemed
to
have
controlled
the
appellant
by
virtue
of
paragraph
(b)
of
subsection
(5d)
of
Section
139
or
alternatively
that
the
appellant
was
controlled
by
a
related
group
of
persons
comprised
of
Mr.
and
Mrs.
Mayfield
because
at
all
material
times
they
were
in
a
position
to
cause
all
or
part
of
the
Class
B
shares
of
the
appellant
to
be
redeemed
and
thereby
become
the
majority
shareholders.
He
contends
that
by
virtue
of
paragraph
(a)
of
subsection
(5(1)
of
Section
139,
where
a
related
group
is
in
a
position
to
control
a
corporation,
that
group
shall
be
deemed
to
be
a
related
group
that
controls
the
corporation.
Section
139(5d)
reads
in
part
as
follows:
(5d)
For
the
purpose
of
subsection
(Sa)
(a)
where
a
related
group
is
in
a
position
to
control
a
corporation,
it
shall
be
deemed
to
be
a
related
group
that
controls
the
corporation
whether
or
not
it
is
part
of
a
larger
group
by
whom
the
corporation
is
in
fact
controlled;
(b)
a
person
who
had
a
right
under
a
contract,
in
equity
or
otherwise,
either
immediately
or
in
the
future
and
either
absolutely
or
contingently,
to,
or
to
acquire,
shares
in
a
corporation,
or
to
control
the
voting
rights
of
shares
in
a
corporation,
shall,
except
where
the
contract
provided
that
the
right
is
not
exercisable
until
the
death
of
an
individual
designated
therein,
be
deemed
to
have
had
the
same
position
in
relation
to
the
control
of
the
corporation
as
if
he
owned
the
shares;
In
my
view
paragraph
(b)
of
subsection
(5d)
of
Section
139
has
no
application
in
the
facts
of
the
present
appeal.
Under
that
paragraph
a
person
in
order
to
be
deemed
to
be
in
the
same
position
in
relation
to
control
of
a
corporation
as
if
he
owned
the
shares,
that
person
must
have
a
right
under
a
contract,
in
equity
or
otherwise
(1)
to
the
shares,
(2)
to
acquire
the
shares,
or
(3)
to
control
the
voting
rights
of
the
shares.
The
only
conceivable
right
which
Mr.
and
Mrs.
Mayfield
may
have
had
under
the
redeemable
feature
attaching
to
the
Class
B
shares
in
the
appellant
would
be
to
bring
about,
by
corporate
action,
the
cancellation
or
elimination
of
those
shares
which
is
a
right
entirely
different
from
a
right
to
those
shares
or
to
acquire
those
shares.
The
voting
rights
attaching
to
the
Class
B
shares
were
vested
in
the
holders
thereof,
namely,
Mr.
Fuller
and
Mr.
Van
Sant,
Jr.
who
were
strangers,
in
the
tax
sense,
to
Mr.
and
Mrs.
Mayfield.
There
is
no
suggestion
in
the
agreed
statement
of
facts,
not
was
any
evidence
adduced
to
suggest,
that
Mr.
and
Mrs.
Mayfield
had
any
right
by
contract,
in
equity
or
otherwise
to
exercise
any
control
over
the
voting
rights
of
the
Class
B
shares.
The
clear
implication
is
that
the
voting
rights
of
those
shares
were
the
sole
prerogative
of
the
holders
thereof.
Therefore
none
of
the
conditions
precedent
to
a
person
being
deemed
to
be
in
the
same
position
in
relation
to
control
of
a
corporation
as
if
he
owned
the
shares
as
contemplated
by
paragraph
(b)
of
subsection
(5d)
of
Section
139
is
present
here.
With
respect
to
paragraph
(a)
of
subsection
(5d)
of
Section
139,
counsel
for
the
Minister
points
out
that
immediately
following
the
incorporation
of
the
appellant,
Mr.
and
Mrs.
Mayfield
were
the
only
shareholders,
each
of
whom
held
500
common
shares
and,
being
the
only
shareholders,
they
became
the
only
directors.
As
directors
and
by
virtue
of
the
authority
vested
in
them
by
paragraph
9
of
the
Articles
of
Association,
they
caused
to
be
issued
500
Class
B
shares
to
Mr.
Fuller
and
500
Class
B
to
Mr.
Van
Sant,
Jr.
Because
of
the
equality
of
votes
so
resulting,
Mr.
and
Mrs.
Mayfield
could
perpetuate
themselves
in
the
positions
of
directors.
As
directors
they
could
issue
additional
shares
to
themselves
or
redeem
Class
B
shares
and
so
ensure
control
in
themselves
by
reason
of
holding
the
preponderance
of
voting
power.
From
these
circumstances
counsel
for
the
Minister
submits
that
while
Mr.
and
Mrs.
Mayfield
are
a
related
group,
with
equal
voting
power
to
the
other
shareholders,
and
so
are
not
in
control
of
the
appellant,
nevertheless
by
virtue
of
the
authority
vested
in
them
by
the
Memorandum
of
Agreement
and
Articles
of
Association
as
directors,
from
which
position
they
could
not
be
ousted,
they
could
change
the
balance
of
voting
power
should
they
so
desire
and
accordingly
they
are
‘‘in
a
position
of
control”?
the
appellant
within
the
meaning
of
those
words
where
they
appear
in
Section
139
(5d)
(a).
Therefore,
he
contends,
Mr.
and
Mrs.
Mayfield
are
deemed
to
be
a
related
group
that
controls
the
appellant.
After
giving
careful
consideration
to
the
argument
of
counsel
for
the
Minister
I
cannot
accede
to
the
correctness
of
the
proposition
upon
which
his
contention
is
based.
In
my
view
the
words
‘‘in
a
position
to
control’’
must
refer
to
a
presently
existing
ability
to
control
by
voting
power
attached
to
ownership
of
shares,
rather
than
being
in
a
position
to
acquire
or
obtain
such
control
predicated
upon
some
future
act
such
as
the
redemption
of
Class
B
shares.
Furthermore,
the
act
of
redeeming
Class
B
shares
is
the
act
of
the
corporation
even
though
that
action
could
be
instigated
by
Mr.
and
Mrs.
Mayfield
in
their
capacity
as
directors.
To
me
the
language
of
Section
139
(5d)
(a)
contemplates
the
circumstance
where
a
group
of
persons
each
of
which
is
related
to
the
other
by
blood
relationship,
marriage,
adoption
or
otherwise
as
outlined
in
Section
139
(5a)
is
in
a
position
to
control
a
corporation
by
reason
of
their
collective
holding
of
a
majority
of
the
voting
power
in
shares,
even
though
they
might
be
part
of
a
larger
group
of
persons
who
are
also
so
related
and
who,
in
fact,
exercise
control
of
the
corporation.
Such
a
related
group,
which
is
part
of
a
larger
related
group,
being
in
a
position
to
control
a
corporation
by
ownership
of
a
majority
of
the
voting
shares,
is
deemed
to
be
a
related
group
that
controls
the
corporation
even
though
the
members
thereof
do
not,
in
fact,
do
so
to
the
exclusion
of
others
to
whom
they
are
also
related.
It
follows
therefore
that
the
appellant
and
Heiland
were
not
associated
and
that
the
appeal
with
respect
to
the
appellant’s
1962.
and
1963
taxation
years
is
allowed.
The
matter
is
referred
back
to
the
Minister
for
re-assessment
accordingly.
The
appellant
is
entitled
to
its
costs
to
be
taxed
in
the
usual
way.
randum
(undated)
from
the
:accountant,
Mr.
Edington,
setting
out
the
manner
of
the
proposed,
sale.,
Letter
dated
March
16,
1963,
from
B;
V:
Massie
o.
F.
G.
Missiaen,
Square
M.
Construction
Ltd,
giving
an
opinion
as
to
the
proposal
to
acquire
the
shares
of
Edeco
Canada
Ltd.
and
shareholders
loans.
Undated
memo
(working
notes)
in
longhand,
covering
proposed
purchase
of
some
shares
of
Edeco
Canada
Ltd.
and
an
option
on
others.
,
'-
“
/
/
Similar
memorandum
setting
out:
proportionate
number
of
shares
to
be
acquired
by
each
of
the
applicants.
Memorandum
in
green
ink,
undated;
(although
March
6,
1963,
appears
in
body
of
it)
setting
out
the
various
documents
to
be
prepared
for
the
purpose
of
the
sale.
The
application
comes
to
this
court
pursuant.
to
the
provisions
of
the
Income
Tax
Act,
R.S.C.
1952,
ce.
148,
Section
126A
(4)
(added
1956,
c.
39)
on
notice
to
the
Deputy
Attorney-General
of
Canada
for
determination
of
the
question
whether
the
client
has
a
solicitor-client
privilege
in
respect
()f.
the
documents.
The
documents
were
seized
for
a
purpose
related
to
the
administration
and
enforcement
of
the
Income
Tax
Act
and
to
determine
the
amount
of
the
tax
properly
payable
by
Edeco.
Canada
Ltd.
and
certain
shareholders
thereof,
which
is
deposed
to
in
the
affidavit
of
John
F.
Flaman,
a
special
investigator
for
the
department
of
national
revenue,
to
which
a
number‘
*of
exhibits
are
attached,
setting
out
the
pertinent.
information.
about
the
capital
structure
of
Edeco
Canada
Ltd.
and
the
share
position.
The
affidavit
also
outlines
the
particulars
of
the
sale
of
certain
shares
in
Edeco
Canada
Ltd.
to
the
:applicants,:
the
priée
and
some
other
relative
correspondence,
including
copies
of,
documents
seized
from
the
possession
of
the
firm
of
chartered’
accountants
in
Edmonton,
acting
for
the
parties,
It
is
clear
the
applicants
were
purchasing,
the.
shares:
in
Edeco
anada.
Ltd.
with
some
prospect
of
using
them.
to
gain
a,
tax
benefit..
,
r
In
principle,
the
taxpayer
is
entitled
to
take
any
steps,
within
the
law,
to
avoid
tax
or
putting
it
the
other
way,
So
as
not
to
attract
tax.
The
taxpayer
incurs-no
censure
if
he
can
walk
outside
the
lines
drawn
by
the
legislature
for
the
imposition
of
taxes:
Levene
v.
Inland
Revenue
Commissioners,
[1928]?.
A.C^
217
at
227;
97
L.J.K.B.
377:
I
wish,
however,
to
point
out
the
position
in
which
Mr.
Levene
and
others
like
him
now
find
themselves.
It
is.
trite.
law
that
His
Majesty’s
subjects
are
free,
if
they
can,
to
make
,
their
own
arrangements,
so
that
their
cases
may
fall
outside
the
scope
of
“the
taxing
Acts.
They
ineur
no
legal
penalties
and,
strictly
speaking,
no
moral
censure
if,
having
considered
the
lines
drawn
by
the
Legislature
for
the
imposition
of
.taxes,
they
make
it
their
business
to
walk
outside
them.
:
The
privilege
as
between
solicitor-client
only
extends
to
consultation
for
the
purpose
of
advice;
Minter
v.
Priest,
[1930]
A.C.
558;
99
L.J.K.B.
391.
At
p.
568
Lord
Buckmaster
points
out
the
mere
fact
that
a
person
is
a
solicitor
and
the
person
to
whom
he
speaks
is
a
client,
is
not
enough.
Also,
records
produced
for
some
purpose,
-
communicated
by
third
parties,
e.g.
an
accountant
to
solicitor
in
answer
to
an
inquiry,
are
not
privileged.
In
ether.
words,
there
must.
be
a
professional
element
made
out,
giving
rise
to
the
claim
for
privilege:
O’Shea
v.
Wood,
[1891]
Pi:
286
at
289;
60
L.J.P.
83.
However,
in
my
view,
documents
herein
fall
within
this
category,
with
the
exception
of
the
undated
letter
from
the
accountant
and
the
notes
in
green
ink
prepared
by
the
accountants.
The
deputy
attorney-general,
through
his
counsel,
submits
that
in
the
correspondence
between
the
auditors,
namely,
Touche
&
Company,
and
the
English
clients,
it
is
evident
that
there
is
an
attempt
to
evade
tax.
Using
the
word
‘‘attempt’’
in
a
general
sense
does
not
impute
anything
improper
or
illegal.
Under
the
Income
Tax
Act,
Section
138(6),
it
is
provided:
138.
(6)
An
avoidance
or
reduction
of
taxes
may
be
regarded
as
improper
for
the
purpose
of
this
section
although
it
is
not
illegal.
If
I
were
able
to
come
to
the
conclusion
that
there
was
anything
fraudulent
or
criminal
or
illegal
about
the
effort
being
made
by
the
applicants
to
gain
some
tax
advantage,
I
would
regard
the
claim
to
privilege
as
being
avoided:
See
Reg.
v.
Cox
and
Railton
(1884),
14
Q.B.D.
153;
54
L.J.M.C.
41
(headnote)
:
All
communications
between
a
solicitor
and
his
client
are
not
privileged
from
disclosure,
but
only
those
passing
between
them
in
professional
confidence
and
in
the
legitimate
course
of
professional
employment
of
the
solicitor.
Communications
made
to
a
solicitor
by
his
client
before
the
commission
of
a
crime
for
the
purpose
of
being
guided
or
helped
in
the
commission
of
it,
are
not
privileged
from
disclosure.
On
the
other
hand,
in
order
to
get
rid
of
the
privilege
there
must
be
something
to
give
colour
to
the
charge
and
there
must
be
some
foundation
in
fact
to
the
claim.
There
has
been
nothing
improper
or
sinister
in
the
so-called
attempt
to
evade
tax
and
the
assumption
on
which
the
claim
of
the
minister
is
founded,
I
think
is
not
substantiated,
and
the
common-law
privilege
accorded
correspondence
and
documents
has
not
been
lost.
The
applicants
will
therefore
be
entitled
to
the
return
of
these
docu-
ments
and
I
order
the
sheriff
to
return
them
accordingly.
The
deputy
sheriff
handed
me
the
sealed
file
with
the
correspondence
in
question,
which
I
will
return
to
the
deputy
sheriff
and
the
remaining
documents
in
the
file,
i.e.,
those
to
which
privilege
has
been
waived
and
those
I
have
found
not
to
be
privileged,
will
be
returned
to
the
custody
of
Mr.
John
F.
Flaman.
While
no
claim
was
made
to
privilege
of
the
correspondence
between
the
client
and
the
chartered
accountant
acting
for
the
applicants,
and
there
is
no
provision
in
the
Income
Tax
Act
to
provide
such
privilege,
it
would
appear
there
is
some
merit
in
such
a
claim.
In
re
William
W.
Kask,
[1966]
C.T.C.
659,
Wilson,
C.J.
succinctly
sets
out
the
principles
upon
which
the
solicitorclient
privilege
exists.
Certainly,
the
chartered
accountant.
with
the
client
is
in
an
analogous
position
to
a
solicitor
and
his
client
and
it
is
rather
strange
that
no
privilege
is
accorded
or
claimed
in
such
circumstances.
HELEN
E.
MITCHELL,
Executrix
of
the
Estate
of
the
late
ANGUS
A.
MITCHELL,
Appellant,
and
MINISTER
OF
NATIONAL
REVENUE,
Respondent.
Exchequer
Court
of
Canada
(Sheppard,
D.J.),
November
30,
1967,
on
appeal
from
a
decision
of
the
Tax
Appeal
Board,
reported
40
Tax
A.B.C.
213.
Income
tax—Federal—Income
Tax
Act,
R.S.C.
1952,
c.
148—Section
The
deceased
had
paid
his
daughter’s
university
fees
and
his
estate
claimed
the
right
to
deduct
them
under
Section
11(1)
(qb)
in
computing
his
income.
HELD:
The
maxim
of
noscitur
a
sociis
applied
and.
Section
11(1)
(qb)
could
be
construed
as
the
words
explicitly
stated,
to
permit
an
allowance
to
a
taxpayer
who
was
a
student
[and
not
to
the
person
who
paid
the
fees].
Appeal
dismissed.
CASES
REFERRED
to
:
In
re
National
Savings
Bank
Ass’n.
(1866),
L.R.
1
Ch.
App.
497
;
Ebbs
v.
Boulnois
(1875),
L.R.
10
Ch.
App.
479.
P.
N.
Thorsteinsson
and
M.
J.
O’Keefe,
for
the
Appellant.
T.
E.
Jackson,
for
the
Respondent.
SHEPPARD,
D.J.:—This
appeal
raises
only
a
point
of
law,
namely,
the
meaning
of
Section
11(1)
(qb)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
as
amended.
In
1963,
a
father
paid
his
daughter’s
tuition
fees
and
his
Executrix,
the
appellant,
claims
to
deduct
that
payment
from
the
father’s
income
by
virtue
of
Section
11(1)
(qb).
The
Minister
contends
that
the
section
applies
only
to
cases
where
the
taxpayer
is
a
student
and
the
payment
and
deduction
are
by
a
student.
The
subsection
then
in
force
(1960-61,
c.
17,
Section
2(1)
enacting
Section
11(1)
(qb))
reads
as
follows:
(qb)
where
a
taxpayer
was
during
the
year
a
student
in
full-time
attendance
at
a
university
in
a
course
leading
to
a
degree,
or
in
full-time
attendance
at
a
college
or
other
educational
institution
in
Canada
in
a
course
at
a
post-secondary
school
level,
the
amount
of
any
fees
for
his
tuition
paid
to
the
university,
college
or
other
educational
institution
in
respect
of
a
period
not
exceeding
12
months
commencing
in
the
year
and
not
included
in
the
calculation
of
a
deduction
under
this
paragraph
for
a
previous
year
(except
any
such
fees
paid
in
respect
of
a
course
of
less
than
13
consecutive
weeks’
duration)
;
The
appellant
contends
:
(1)
That
‘‘a
taxpayer’’,
the
second
and
third
words,
should
be
read
as
“a
person”
or
‘‘any
person’’
because
the
definition
of
a
taxpayer
reads:
“
taxpayer’
includes
any
person
whether
or
not
liable
to
pay
tax;”
(Section
139
(1)
(av)
)
and
(2)
That
“by
him’’
is
implied
after
the
word
“paid”
as
meaning
that
the
sum
to
be
deducted
must
be
paid
by
the
father,
the
taxpayer.
In
support
of
her
contention
the
appelant
also
referred
to
numerous
subsections
of
Section
11
where
the
words
‘‘the
taxpayer”
are
used
which
necessarily
refer
to
‘‘a
taxpayer’’
mentioned
in
the
preliminary
words
of
Section
11(1)
as
the
one
whose
income
is
being
computed
for
a
taxation
year
:
see
Section
11(1)
(a),
(cb),
(ed),
(e),
and
when
‘‘a
taxpayer’’
is
used
in
Section
11
there
are
other
words
which
indicate
they
relate
to
“a
taxpayer’’
mentioned
in
the
preliminary
words
of
Section
11(1)
as
the
one
whose
income
is
being
computed.
Therefore
the
appellant
contends
that
as
such
other
words
are
not
to
be
found
in
paragraph
(qb)
‘‘a
taxpayer’’
should
be
read
as
‘‘any
person’’,
and
in
the
result
the
section
should
be
construed
to
mean
that
where
‘‘
any
person
was
during
the
year
a
student
..
.
.
the
amount
of
any
fees
for
his
tuition
paid
by
him
(the
taxpayer,
here
the
father)
.
.
.
”
That
contention
fails
for
various
reasons.
‘‘
A
taxpayer”
is
not
defined
simpliciter
as
‘‘a
person’’,
and
the
definition
merely
means
that
a
‘‘person’’
to
be
a
taxpayer
need
not
be
a
payer
but
that
definition
does
not
excuse
such
‘‘person’’
from
having
the
other
incidents
of
a
taxpayer,
which
in
this
instance
would.
include
the
considering
of
what
“may
be
deducted
in
computing
the
income
of
a
taxpayer’’,
the
preliminary
words
of
Section
11(1).
Hence
the
definition
does
not
permit
the
substitution
of
‘any
person”?
for
the
words
‘‘a
taxpayer”
in
Section
11(1)
(qb).
Further,
where
the
words
‘‘the
taxpayer”
are
used
in
Section
11(1)
they
refer
to
‘‘a
taxpayer’’,
which
is
the
precise
term
in
the
preliminary
words
of
Section
11(1).
Therefore,
whether
he
be
described
as
‘‘the
taxpayer”
or
‘‘a
taxpayer”
the
words
equally
refer
to
the
same
person
mentioned
as
‘‘a
taxpayer’’
in
the
first
part
of
Section
11(1),
that
is,
the
one
whose
income
is
being
computed.
Here
‘‘the
taxpayer”
and
‘‘a
taxpayer”
are
equivalent.
In
In
re
National
Savings
Bank
Association
(1866),
*.R.
1
Ch.
App.
547,
Turner,
L.J.
at
p.
550
said:
.
.
.
I
am
quite
satisfied
that
no
sufficient
reason
can
be
assigned
for
construing
the
word
“contributory”
in
one
part
of
the
Act
in
a
different
sense
from
that
which
it
bears
in
another
part
of
the
Act.
(36
Halsbury’s
Laws
of
England
(3rd
ed.)
p.
396,
para.
595.)
The
words
‘‘by
him’’
which
the
contention
implied
after
“paid”
in
Section
11(1)
(qb),
must
refer
to
the
nearest
antecedent
to
which
they
could
reasonably
refer
and
here
to
“student”,
particularly
as
the
preceding
words
‘‘for
his
tuition’’
necessarily
refer
to
“student”.
Such
construction
defeats
the
contention
of
the
appellant,
as
it
would
only
permit
a
deduction
to
a
student
for
his
tuition
paid
‘‘by
him’’.
To
avoid
such
construction
the
contention
must
add
after
“paid”
some
additional
words
such
as
those
following;
‘‘by
the
taxpayer
referred
to
as
‘a
taxpayer’
in
the
preliminary
part
of
Section
11(1)’’.
However,
that
is
adding
words
to
the
section,
which
is
not
permissible
(36
Halsbury’s
Laws
of
England
(3rd
ed.)
p.
382,
para.
570).
The
additional
words
qualify
“paid”
in
a
way
that
is
not
found
in
the
section
and
is
required
only
by
the
appellant’s
contention.
That
contention
of
the
appellant
would
lead
to
unreasonable
meanings
as
follows:
(1)
“Any
person’’
could
pay
the
whole
of
his
taxable
income
to
universities
for
students’
tuition
and
thereby
claim
the
right
to
deduct
under
Section
11(1)
(qb)
the
amount
so
paid
even
to
escape
the
paying
of
any
income
tax.
It
is
rather
difficult
to
see
what
interest
a
‘‘person’’
could
have
in
paying
the
tuition
fees
of
complete
strangers,
or
the
intention
of
the
statute
to
protect
such
non-existing
interest
of
the
taxpayer.
(2)
That
contention
would
conflict
with
the
payments
for
a
child
that
may
be
deducted
under
Section
26(1)
which
requires
that
the
child
be
a
dependent
of
the
taxpayer.
There
seems
to
be
no
reason
why
the
intention
should
be
inferred
that
the
taxpayer
under
Section
26(1)
should
have
a
restricted
right
to
deduct
for
his
own
children
only
if
they
be
dependent
but
have
as
“a
person’’
under
Section
11(1)
(qb)
an
unrestricted
right
to
pay
the
tuition
for
his
children
and
for
strangers.
It
is
not
permissible
to
give
one
section
its
full
meaning
and
to
compress
the
remainder
of
the
statute
into
any
gaps
that
may
remain,
but
the
whole
statute
must
be
read,
that
is,
construed
together
to
avoid
such
conflicts:
86
Halsbury’s
Laws
of
England
(3rd
ed.)
p.
395,
para.
994.
In
Ebbs
v.
Boulnois
(1875),
L.R.
10
Ch.
App.
479,
James,
L.J.
at
p.
484
said:
Common
sense
must
be
applied
to
reconcile
the
two
enactments.
It
is
a
cardinal
principle
in
the
interpretation
of
a
statute
that
if
there
are
two
inconsistent
enactments,
it
must
be
seen
if
one
cannot
be
read
as
a
qualification
of
the
other.
The
words
of
Section
11(1)
(qb)
contain
an
express
and
clear
meaning.
The
following
sections
should
be
read
together
as
being
contiguous
and
being
then
current
subsections
of
the
statute.
Section
11(1)
(q)
(enacted
1956,
c.
39,
Section
3(5))
provided,
where
a
taxpayer
is
a
member
of
the
clergy
.
.
.’’;
Section
11(1)
(qa)
(enacted
1956-57,
c.
29,
Section
4
(3))
provided
‘where
a
taxpayer
is
a
teacher
.
.
.’’;
Section
11(1)
(qb),
the
section
in
question
(enacted
1960-61,
c.
17,
Section
2(1))
provided,
“where
a
taxpayer
was
during
the
year
a
student
.
.
.
”’
These
subsections
are
evidently
intended
to
authorized
specific
deductions
to
specific
groups;
by
Section
11(1)
(q)
to
clergymen
for
their
residence,
by
Section
11(1)
(qa)
to
teachers
for
certain
contributions,
and
by
Section
11(1)
(qb)
to
students
for
certain
tuition.
The
maxim
noscitur
a
sociis
applies
and
therefore
the
subsections
should
be
uniformly
construed
as
providing
for
the
allowance
to
a
special
group
of
taxpayers,
and
under
such
maxim,
Section
11(1)
(qb)
can
be
construed
as
the
words
explicitly
state,
in
permitting
an
allowance
to
a
taxpayer
who
is
a
student
within
that
subsection,
for
the
tuition
fees
therein
specified.
It
follows
that
the
contention
of
the
Minister
should
be
accepted
and
the
appeal
dismissed.
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