A J Frost:
1 This concerns three appeals, heard jointly at the City of Ottawa, Ontario, on March 17, 1975, from several income tax assessments with respect to appellant's 1970, 1971 and 1972 taxation years.
2 The notices of appeal only identify the assessments by date and total amounts assessed. However, on the basis of the documents furnished to the Board pursuant to section 89 of the Income Tax Act as it read before 1972 and pursuant to section 86 of the Tax Review Board Act, the Board has assumed that the appeals are from assessments dated January 26, 1972, and carrying the numbers 194795, 194794, 194797 and 194798, pertaining to the 1970 taxation year; the numbers 194793, 194791, 194799 and 194780, pertaining to the 1971 taxation year and finally from the assessments dated July 5, 1972, in the amount of $6,482.71; July 27, 1972 in the amount of $7,278.91; and October 10, 1972, in the amount of $8,179.83. These assessments were levied pursuant to the provisions of subsection 153(1) (withholding ‘tax”), subsection 227(8) (liability on account of not withholding) and subsection 227(9) (penalty). The assessments for 1970 to 1972 inclusive were also based on sections 22 and 23 of the Canada Pension Plan and the assessment dated October 10, 1972, included a reference to the Unemployment Insurance Act.
3 At the opening of the hearing a statement of partial agreement as to facts was filed with the Board, which reads as follows:
For the purpose of the appeal by the Appellant to the Tax Review Board only, the parties hereto agree on the following facts:1. The Appellant is a body corporate having its head office and principal place of business at the City of Ottawa, in the Province of Ontario, Canada.
2. The Appellant employs in the City of Ottawa many employees, some of whom are Indians within the meaning of that term as used in the Indian Act RSC 1970, c I-6, and some of whom are non-Indian.
3. Subject to any oral evidence, the said Indian employees perform their duties on behalf of the Appellant in the said City of Ottawa at the Varette Building on Albert Street.
4. The said Varette Building is not on a reserve as that term is used in the said Indian Act.
5. For services rendered the Appellant pays the said Indian employees salary.
6. As between the parties, should it be held that the Appellant was required to deduct and remit tax to the Respondent, it is agreed that the assessments are correct.
7. The Appellant, believing that the said Indian employees were for various reasons not liable to taxation pursuant to the Income Tax Act, while deducting such amounts as required by the Income Tax Act from the salary paid to the said Indian employees, did not remit the amounts so deducted to the Receiver General of Canada as stipulated in the Income Tax Act and Regulations.
8. The Respondent, being of the view that the Appellant was paying salary, wages or other remuneration to persons who were not exempt from taxation pursuant to the Income Tax Act, Indian Act or any other Act, assessed the Appellant for the tax which it had deducted but not remitted together with interest thereon and penalty.
4 From the description of the nature of the assessments and the statement of partial agreement as to facts, it follows that these appeals do not concern assessments on income in the ordinary sense but are rather assessments issued against an employer who allegedly has failed in his duty as agent for the Minister of National Revenue in the collection of income tax, pension plan contributions and unemployment Insurance contributions. It is for this reason that counsel for the respondent emphasized throughout his argument that these appeals are a dispute based on the provisions of the Income Tax Act and not the Indian Act.
5 Counsel for the respondent argued that the question in respect of the taxability of the Indian employees of the appellant will be decided when these employees are assessed personally. He referred particularly to the Snow case now pending before the Federal Court (Trial Division) which case was previously decided in favour of the respondent by this Board ([1974] C.T.C. 2327, 74 D.T.C. 1254), and contended that this decision would be binding in respect of this appeal, although the main thrust of his argument was in a different direction.
6 He submitted that the outcome of this appeal must depend primarily on the question of whether the appellant was in fact an agent of the Minister who as an employer had paid its Indian employees wages from which it should have withheld and remitted prescribed amounts pursuant to the Income Tax Act.
7 Counsel for the appellant, however, contended that the obligation to withhold and remit tax is conditional upon the tax being payable by the Indian employees who receive salary.
8 It is necessary to dispose of this issue first. Subsection 153(1) on which the respondent has based his assessment, reads as follows:
153. (1) Withholding every person paying(a) salary or wages or other remuneration to an officer or employee,
(b) a superannuation or pension benefit,
(c) a retiring allowance,
(d) an amount upon or after the death of an officer or employee, in recognition of his service, to his legal representative or widow or to any other person whatsoever,
(d.1) an amount as a benefit under the Unemployment Insurance Act, 1971,
(e) an amount as a benefit under a supplementary unemployment benefit plan,
(f) an annuity payment,
(g) fees, commissions or other amounts for services, or
(h) a payment under a deferred profit sharing plan or a plan referred to in section 147 as a revoked plan,
9 (Italics are mine.)
10 Under this section, every person (and the appellant corporation is a legal person) paying salary is required in a taxation year to deduct as agent of the Minister such amount as may be prescribed on account of the payee's tax. For this appeal, the important words are those in italics. If the “agent” correctly assumes that nothing had to be withheld or remitted on account of the payee's tax for the reason that the payee is a non-taxable unenfranchised Indian and does not owe the Government of Canada any tax at all, the Minister could not expect or force his statutory agent to perform such an illegal act. The respondent cannot legally take the position of saying to the appellant: “you hand the money to me and if your Indian employees prove their case, I will give it back to them”, because if the respondent would be wrong, he must have been wrong ab initio. In that case, the Minister could not expect the appellant to assist him in collecting tax which the Minister was legally not entitled to assess. This being the case, the real heart of this dispute is the question whether or not Indian employees of the appellant were legally liable to pay income taxes. The appellant corporation can only refute the Minister's approach if its Indian employees are non-taxable, which makes this appeal an Indian case as well as a tax case. The Board therefore rejects the submission by counsel for the respondent that this is only a tax case.
11 Statutory law exempting Indians from taxation preceded, by many years, the Income Tax Act, and established the broad principle that all property of an Indian situated on a reserve is exempt from taxation, thereby raising a presumption in law that the Income Tax Act cannot be taken to apply to the property of Indians on a reserve unless it is spelled out in clear unambiguous language and there is no conflict. Although the language of the Indian Act and the Income Tax Act ap pear to be repugnant in respect of taxation, it cannot be supposed that Parliament intended to contradict itself by exempting Indians under the earlier legislation and then tearing up the earlier statutes by imposing liabilities on them under the Income Tax Act. Besides the question of repugnancy, the Indian Act is a special Act which tends to be derogatory of the Income Tax Act, which is a general taxing Act. To avoid collision between these two statutes, the logical construction is simply that the Income Tax Act as a general statute applies to Indians only in respect of those areas of taxation wherein the Indian Act is silent. The Indian Act, however, is not silent but speaks with rather a loud voice, on the subject of taxability of Indians. The appropriate sections read as follows:
87. Notwithstanding any other Act of the Parliament of Canada or any Act of the legislature of a province, but subject to subsection (2) and to section 83, the following property is exempt from taxation, namely:90. (1) For the purposes of sections 87 and 89, personal property that was(a) purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands, or
(b) given to Indians or to a band under a treaty or agreement between a band and Her Majesty,
12 The language of the above provisions is broad and speaks to exclude all other tax legislation, and thereby constitutes special legislation overriding the Income Tax Act. It is only where the Indian Act is silent that other statutes can affect the rights of unenfranchised Indians.
13 In the present case, the facts are somewhat extraordinary, and quite different from the Snow case referred to by counsel for the respondent. Here a number of unenfranchised Indians temporarily leave their reserve to join the staff of the appellant, an organization of a purely non- commercial nature acting on behalf of Indians and in respect of purely Indian affairs, and financed by moneys appropriated for the Indian cause by Parliament. Their domicile is their reserve and they were certainly employed as members of their band. In no way do I consider these people as having left the reserve to seek their fortune and earn a living in the non-Indian society. One could consider them as an extended arm of their bands, operating in Ottawa at the con venience of Indian and non-Indian parties concerned with the well-being and interests of unenfranchised Indians. It seems to me that the Indian Act should be interpreted and applied in a flexible way which does justice to the underlying philosophy of that Act.
14 If the appellant corporation had been physically located on reserve land, no effort would have been made by the respondent to tax the Indian employees of the appellant. In my opinion, the moneys earned by the Indian employees of the appellant are personal property and exempt from taxation for the following reasons:(a) the source of the moneys paid is comprised of funds appropriated by the Parliament of Canada for that purpose;
(b) the Indian employees are domiciled on their reserves; and
(c) the personal property consisting of wages, although strictly speaking, earned outside a reserve follows the situs of the owner and is therefore within the framework of the Indian Act property situated on a reserve.
15 I therefore allow the appeals except in so far as the assessments concern the amounts withheld or to be withheld on account of the Canada Pension Plan and the Unemployment Insurance Act. these matters being outside the jurisdiction of this Board. The matter is referred back to the Minister for reconsideration and reassessment in accordance with the above findings.
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