Western Wood Products Limited v. Minister of National Revenue, [1963] CTC 99, 63 DTC 1053

DUMOULIN, J :—This is an appeal from a decision of the Tax Appeal Board, 25 Tax A.B.C. 317, dated November 14, 1960, in respect of appellant’s income tax assessment for 1957, disallowing the latter’s claim to a deduction of $23,000, alledgedly representing a reserve for bad debts.

The exact nature of Western Wood Products’ activities was not precisely revealed, but its Memorandum of Association of April 30, 1946, Province of Alberta (exhibit 9), mentions, amongst its many objects, the following :

“ (a) To carry on the business of the manufacture and sale

of wood veneer and plywood in all its branches and phases.

(b) To carry on the business of wood distillation and the sale of the products and by-products thereof in all phases.

(e) . . .

(d) To carry on the business of logging and lumbering and the sale of lumber by wholesale or retail in all its branches”.

Further powers worthy of notice are conferred by items (f) and (n):

“(f) To enter into partnership or into any arrangement for

sharing of profits, union of interests, co-operation, joint adventure, reciprocal concessions, or otherwise with any person or Company, wheresoever incorporated, carrying on or engaged in . . . any business or transaction which the Company is authorized to carry on or engage in . . .

(n) To invest and deal with the moneys of the Company not immediately required in such manner as may from time to time be determined”.

Western Wood Products Ltd. has its registered office in the City of Edmonton.

The appellant submits this interpretaion of the matter in paragraph (1) of its Notice of Appeal:

“ (1) From time to time over a period of ten years the Apel-

lant company has made advances of money to various lumber operators for the purpose of increasing its purchases and/or sales and/or net income. The advances were to sawmill operators and/or planer operators and/ or distributors. The principal distributor to which advances of money were made was Direct Lumber Company Ltd. as a result of which the Appellant company received substantial commissions. The Appellant company owns Over ninety-nine per cent of the issued shares of Sylvan Lumber Company Limited. The Appellant com- made advances of money to Direct Lumber Company Ltd. which in turn made advances of money to Sylvan Company Ltd. with the understandnig that the Appellant would absorb any losses incurred by Direct Lumber Company Ltd. resulting from its dealings with Sylvan Lumber Company Ltd. Sylvan Lumber Co. Ltd. sustained substantial losses and was unable to repay Direct Lumber Co. Ltd. and in 1957 pursuant to the previous understanding Direct Lumber Co. Ltd. charged to Wes- tern Wood Products Ltd. $23,000.00 of the amount owing to it by Sylvan Lumber Company Ltd. As the amount was uncollectable from Sylvan Lumber Company Ltd. a Reserve for Bad Debts in the sum of $23,000.00 was set up in the records of Western Wood Products Limited and the same amount was deducted from Income.”

As seen above, this reserve was refused by the Department.

The respondent’s disallowance of this reserve fund is motivated quite plainly in paragraphs (1) and (5), respectively, found on pages 12 and 14 of the written argument filed of record in the ease; I quote:

“ (1) There is no privity of contract in the absence of assignments

or guarantees and, hence, no debtor-creditor relationship as between Western Wood and Sylvan Lumber.

(5) The indebtedness of $26,133.39 (cf. ex. B) arose from dealings between Sylvan Lumber Company Limited and Direct Lumber Ltd. which did not involve the appellant and, accordingly, the appellant would not be entitled to deduct all or any portion thereof.’’

Respondent’s submissions of law pertaining to the above arguments are derived from Sections 11(1) (e), 12(1) (a) and 137(1) of the Income Tax Act, R.S.C. 1952, c. 148.

At this very point, it is appropriate to note that notwithstanding the separate legal entity of each of the three firms herein concerned, Western Wood Products acted, so to say, as the fountain-head of trilogy, owning 99 per cent of Sylvan Lumber’s issued shares, and controlling 68 per cent, or slightly more, of Direct Lumber’s voting stock. On the left page of exhibit J, appellant’s income tax return sheet for 1956, Direct Lumber Co. Ltd. is qualified with the caption ‘ i interlocking shareholders’’, and Sylvan Lumber Co. is styled ‘‘subsidiary company’’.

We are told, with even a flourish of doggerel verse, at pages 1 and 2 of the appellant’s brief that:

“The operations of W (standing for Western Wood Products) over the years was (‘were’ would appear better suited to the current grammatical prejudice) moderately profitable. The operations of D (for Direct Lumber Ltd.) over the years was (ditto) moderately profitable. But to paraphrase a favorite song of a famous Canadian:

‘Tho we worked all night, and we worked all day,

We couldn’t make that Sylvan Lumber pay’.” A jocose confession of a melancholy result.

At page 2 of its argument, the appellant raises this question: 44 But, which Company—D or W—was the actual creditor?” of Sylvan Lumber, and suggests a solution which might be somewhat over-simplified, saying that:

From the standpoint of the respondent there was no material difference. The loss arising from the bad debt would be deductible from the income of either D or W depending on which was the actual creditor in whatever year would suit their purpose and at the same time comply with the Income Tax Act, and the net amount collectable by the respondent ultimately, would for all practical purposes be the same approximate amount.”

Some inkling at least about the relative degree of approximation between the ‘‘moderately profitable operations’’ of Western Wood Products and Direct Lumber Co., for taxation year 1957, would have been welcomed, and possibly explained why Western Wood and not Direct Lumber was arbitrarily chosen as Sylvan Lumber’s Creditor. Moreover, in matters of strict law, the Court can attach but slight concern to ‘‘practical purposes’’, subjectively volunteered by a taxpayer, as compared with its duty to comply with the “legal purposes’’ prescribed by statute.

In keeping with this norm, three main issues are now singled out for examination, namely: the acceptable plausibility of ‘ 4 the understanding ” supposedly assumed by the appellant to secure Direct Lumber against any losses at the hands of Sylvan Lumber ; the admissibility, pursuant to the proof adduced, of money advanced by Western Wood to Direct Lumber, or of transactions between Western, Direct and Sylvan; and lastly, the degree of credence attaching to that roundabout shifting of debts from Sylvan, via Direct Lumber, unto the appellant.

One witness only testified, Mr. Richard Carl D. Ogilvie, who had qualified as chartered accountant in December, 1957, and examined the appellant’s books of accounts during 1958, replacing in that task the firm of John B. White.

On this triple score what does the evidence reveal concerning :

(a) An undertaking of guarantee between the appellant and Direct Lumber?

Counsel for the respondent, Mr. W. G. Morrow, Q.C., on cross- examination puts these questions to Mr. Ogilvie (cf. transcript pp. 51 and 62) :

“Q. Now, in this cheque (should be: check) that you refer to and in your research for preparation for today have you ever seen any documents such as a letter or a document of assignment or anything of that kind passing between one company and another with respect to the $26,133.00 or with respect to the $23,000.00? A. No, I have seen no documents.

Q. And you have not observed any document for example of Western dated December 31st, 1957, or subsequent to that, saying ‘we have assumed this matter’ or ‘we have allowed this transaction to take place and you can now look to us’ or vice versa, none of that? A. Nothing.”

Next on page 62:

“Q. Mr. Ogilvie, we have already had you say that insofar as your research is concerned you could find no sign of a guarantee or any such written undertaking or assumption of an obligation by Western Wood Products to take over the obligations of Sylvan to Direct, we have already got that?

A. That is correct. ’’

Since this lone witness has seen nothing nor found anything to materialize the would-be plea of warranty we are then left with a totally uncorroborated declaration.

(b) Advances of money to Direct Lumber or transactions between appellant and the two affiliate companies.

Pursuing his cross-examination, Mr. Murrow, Q.C., asks:

“Q. Is it a fair statement, Mr. Ogilvie, that on your examination of all of the records of the three companies that there is no inclusion in the income of Western Wood Products, the Appellant, of these items of debt that show as owing from Sylvan to Direct? A. I would answer that by saying this. That in my opinion it was included in the calculation of income.

Q. . . . Now, concern yourself to what you saw on the books, sir. I am suggesting it does not show anywhere? A. As being included in the income?

Q. Yes? A. I would say ‘No’.”

At page 41 :

‘“Q. Now to go back to my question. Except for what you can discern from Exhibits A and B, which presumably took place on December 31st, 1957, in all of your research and preparation and examination of what book you did before you came here can you find anywhere that that $23,000 or any part of it or even a fraction of it shows on Western’s books? A. This is prior to December 1957 that you are speaking of?

Q. Yes? <A. No, I can’t.”

On page 46, we find that :

“Q. (by Mr. Morrow) Did: you ever at any time in any of your research see where it (Sylvan) had invoiced in any way or appeared to have done any work for the Western Wood Company? A. No. I have examined no records in that regard. ’ ’

Ogilvie agrees that in his review of whatever records were shown to him he could find no traces of arrangements between Direct Lumber or Sylvan Lumber and the appellant (cf. Transcript p. 47). On the preceding page 46, the witness was reported as stating that he could find no evidence of Sylvan Lumber performing any work for Western Wood, nor any entries to such effect in the books of the two companies.

And again on page 57 , we read the following questions and replies thereto between the same parties:

“Q. And certainly as far as that balance sheet is concerned once again we find nothing indicating an indebtedness from the Sylvan Company to Western? A. Correct.

Q. . . . Have you any knowledge yourself of why any advances or payments were made by Direct Lumber to Sylvan?

A. No, I don’t know why they were made from Direct Lumber to Sylvan Lumber.”

Surely, no material of any convincing worth was adduced in respect of this second point, nothing from which the appellant could possibly derive any assistance for his contention of a bona fide indebtedness, created between Sylvan Lumber and Direct Lumber, guaranteed by Western Wood. Appellant’ s theory must stand or fall according to the evidence given by his accountant and only witness, who, on cross-examination, has so far, negatived this basis for his client? s plea.

Coming now to the third item :

(ce) The credibility of the debt transfer from Sylvan to Western Wood, some mention should be made of the pertinent exhibits filed.

One sheet of paper supposedly holds good for five exhibits, viz. : A, B; G, H and I. This document, a copy of the appellant’s ledger :or book of accounts, bears the date of December 31st, 1957, according to information orally imparted, since only the last figure of the year appears.

I do not hesitate to say that, but for explanation obtained at the trial, this more or less glorified scrap of paper might have remained meaningless due to its practically illegible scribbling. Apparently (cf. exhibit B) it debits Sylvan Lumber in the sum of $26,133.39 and credits Direct Lumber Limited with $26,133.39. Correspondingly, exhibit A on the left hand column has these entries:

‘'Dr. P. & L. (meaning probably Proprietorship and

Liabilities)	-	.	$28,000
Cr. Res. Bad Debts	.—		$23,000
Re Sylvan.’’

I might add that exhibit C Western Wood Products balance sheet for the six months ending June 30, 1956 under the mention "Advances to Affiliated Companies’’ debits Direct Lumber Company in the sum of $33,246.16.

The appellant’s income tax return for 1957, exhibit I, is no more explicit than exhibits A and B. It lists a first and initial reserve for Bad Debts amounting to $22,992, subsequently carried over to the round sum of $23,000. This too unconventional method of bookkeeping led respondent’s counsel to probe Mr. Ogilvie on its dubious merits (cf. Transcript pp. 50-51).

‘*Q. So that another piece of paper still in Western’s accounts shows a reserve for, what do you call it, a deposit to cover bad debts of $23,000.00? A. Yes.

Q. And it says ‘re: Sylvan’? A. That is correct.

Q. And I assume that you have noticed or that there is such a thing, there is a similar type of voucher in Direct’s books and in turn in Sylvan’s books working this thing back or forwards as the case may be? A. I have not seen these. However in the audit report of our 1958 examination we did report that the accounts had been checked, the inter-company accounts had been checked from the books of one to the other.

Q. Now, in this cheque (check) that you refer to and in your research for preparation for today have you ever seen any documents such as a letter or a document of assignment or anything of that kind passing between one company and another with respect to the $26,133.00, or with respect to the $23,000.00 ? A. No, I have seen no documents.

Q. And you have not observed any document for example of Western dated December 31st, 1957 or subsequent to that saying ‘we have assumed this matter’ or 'we have allowed this transaction to take place and you can now look to us’, or vice versa, none of that? A. Nothing.

Q. Nothing of that kind. And aside from these two exhibits À ‘and B you have no other knowledge of how the $23, 000.00 got into their books? A. No.”

A few remaining quotations, taken from pages 59 and 62, will suffice to complete this overlong sifting of the evidence.

Mr. Morrow to Ogilvie :

“Q. Now would you agree with me that certainly up until one minute before Exhibits A and B took place we have Sylvan as building up an indebtedness and perhaps the other companies building up a profit? A. This appears to be so.

Q. Mr. Ogilvie, we have already had you say. that insofar as your research is concerned you could find no sign of a guarantee or any such written undertaking or assumption of an obligation by Western Wood Products to take over the obligations of Sylvan to Direct, we have already got that? A. That is correct.

Q. Now starting from that point I am asking you that to transfer over this $23,000.00 liability to Western. Wood Products and thereby reduce Western Wood Products profit for the year is that not in effect an artificial attempt to reduce Western Wood Products income? A. I would answer by saying this, that if we assume the guarantee was there it is not.

Q. Yes, but you have already said that you had no knowledge of a guarantee? A. That is correct.

Q. Well then let us say assuming there is no guarantee? A. Assuming there is no guarantee it could be looked upon in that way, yes.’’

This protracted analysis of the case’s factual components scarcely leaves any room for doubt. The unescapable result cannot be any other but that: (a) Western Wood Products utterly failed to prove it had undertaken to hold Direct Lumber Ltd. secure against eventual losses in the latter’s dealings with the now defunct Sylvan Lumber Co.; (b) also failed to establish any debtor-creditor relations between itself and Direct Lumber, resulting from a warranty of Sylvan’s debts, and (c) did not resort to its so-called bookkeeping entries, viz. exhibits A and B to a bare minimum of reliable information. It does appear that the alleged transfers of debts, guessed at more than shown on exhibits A and B, dated December 31, 1957, are nothing better than flimsy traces of an otherwise easily discernible attempt to ‘‘unduly or artificially reduce the income’’ of appellant, in defiance of Section 137(1). A manipulation of this kind was of course facilitated by the interwoven relationship of the three legal entities concerned, which were not dealing at arm’s length (cf. Section 139(5a) (ce) (i) ).

The paramount motives, however, for waiving aside the appellant’s averments are, as stated in respondent’s brief, that in the absence of assignments or guarantees Western Wood Products was not a creditor of Sylvan Lumber whose indebtedness to Direct Lumber arose from transactions foreign to Western Wood Products. Therefore, the appellant is excluded from the scope of Section 11(1) and the permissive exception of its subsection

(e) (i) thus worded :

“(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 :

(e) Reserve for doubtful debts.—a reasonable amount as a reserve for

(i) doubtful debts that have been included in computing the income of the taxpayer for that year or a previous year.”

For. the reasons above, the appeal is dismissed with all taxable costs allowed to the respondent.

Judgment accordingly.

JAMES J. HALLEY (EXECUTOR or WILLIAM F. HALLEY, DECEASED), Appellant,

MINISTER OF NATIONAL REVENUE, Respondent.

Exchequer Court of Canada (Thurlow, J.), February 22, 1963, on appeal from an assessment of the Minister of National Revenue.

Estate tax—Federal—Estate Tax Act, S.C. 1958, c. 29—Section 7(1) (d)—Gift to charitable organization—Whether “absolute”.

The testator, who died in January, 1959, directed that the residue of his estate be held by his executor and trustee upon trust and to pay the annual income therefrom to the testator’s sister for her life and upon her death, after paying two pecuniary legacies, “to give all the rest and residue of (his) estate to the Roman Catholic Episcopal Corporation, St. John’s.” However, by another clause of his will, the testator’s sister was given the power to draw upon the rest and residue at will for her own absolute use and benefit. The sole point at issue was whether, in the circumstances, the gift to the charitable organization was deductible under Section 7(1) (d) as being “absolute”, in accordance with the then wording of the section. The appellant contended that the word “absolute” meant simply that there must be no possibility of reversion whereas the Minister contended that it implied both vesting and indefeasibility.

HELD:

(i) That, since there is more than one sense in which the word “absolute” is commonly used, its meaning in Section 7(1) (d) must be resolved by reference to its context;

(ii) That in the context of the Act it appears more natural to interpret the word from the point of view of the recipient than from the point of view of the deceased, and as referring to the irrevocable and undefeat- able vesting rather than to the unlimited extent of the interest given;

(iii) That the word should be interpreted as meaning vested and indefeasible ;

(iv) That the charitable organization did not become indefeasibly entitled to the residue and the gift therefore cannot be established to have been “absolute”;

(v) That the interpretation is not affected by the 1960 amendments to Sections 7(la) and 7(1) (d) ;

(vi) That the appeal be dismissed.

CASES REFERRED TO:

Lassence v. Tierney (1849), Mac. & G. 551; 41 E.R. 1379;

Hancock v. Watson, [1902] A.C. 14;

Adamson v. A.-G., [1933] A.C. 257;

Browne v. Moody, [1936] A.C. 635;

In re Williams; Williams v. Williams, [1897] 2 Ch. 12;

Rhoden v. Wicking, [1947] V.L.R. 60.

K. E. Eaton, for the Appellant.

G. W. Ainslie and D. H. Bowman, for the Respondent.

THURLOW, J.:—This is an appeal from an assessment of estate tax in respect of property passing on the death of William F. Halley late of St. John’s, Newfoundland; who died on January 17, 1959. The appeal, which is the first to come before this Court under the Estate Tax Act, S.C. 1958, c. 29, raises a question on the interpretation of Section 7(1) (d) of the statute as originally enacted and involves as well a subsidiary point as to the effect on the interpretation of that section of a retroactive amendment made by Section 4 of S.C. 1960, ce. 29. The issue is whether the value of a portion of the residue of the estate of the deceased is deductible under Seetion 7(1) (d) of the Act in computing the aggregate taxable value of the property passing on his death.

By Section 2(2) of the Act, the aggregate taxable value of the property passing upon the death of a person is declared to be the aggregate net value of that property computed in accordance with Division B minus the deductions permitted by Division C. Division C is Section 7 and by subsection (1) as originally enacted, it provided that:

4 7. (1) For the purpose of computing the aggregate taxable value of the property passing on the death of a person, there may be deducted from the aggregate net value of that property computed in accordance with Division B such of the following amounts as are applicable:

(d) the value of any gift made by the deceased whether during his lifetime or by his will, where such gift can be established to have been absolute, to

(i) any organization in Canada that, at the time of the making of the gift, was a charitable organization operated exclusively as such and not for the benefit, gain or profit of any proprietor, member or shareholder thereof, or

(ii) Her Majesty in right of Canada or a province, a Canadian municipality or a municipal or other publie body in Canada performing a function of government,

minus such part of any estate, legacy, succession or inheritance duties or any combination of such duties (including any tax payable under this Part) as is either by direction of or arrangement made or entered into by the deceased whether by his will or by contract or otherwise, or by any statute or law imposing such duties or relating to the administration of the estate of the de- ceased, payable out of the property comprised in such gift or payable by the donee as a condition of the making of such gift;’’

The appeal turns upon the interpretation of the word “absolute” in this provision. By paragraphs 6 and 7 of ‘his will the deceased gave the residue of his estate to his executor and trustee upon trust to convert it and to invest the proceeds and to pay the income therefrom to the testator’s sister, Kathleen, for her life and upon her death to pay therefrom two pecuniary legacies and ‘‘to give all the rest and residue of (his) estate to the Roman Catholic Episcopal Corporation, St. John’s.’’ In paragraph 8, however, he provided:

“ (8) I hereby declare that notwithstanding anything hereinbefore declared, it shall be lawful for my executor and trustee upon the written request of my said sister Kathleen at any time or times to raise any sum or sums out of the rest and residue of my estate given to my executor and trustee in clause 6 hereof and to pay such sum or sums to my said sister Kathleen for her absolute use and benefit in addition to the income hereinbefore given to her.’’

It is agreed that the deceased’s sister, Kathleen, survived him and that the Roman Catholic Episcopal Corporation, St. John’s, was at all times material. to the appeal an organization of the kind referred to in subparagraph (i) of Section 7(1) (d). It is also agreed that in computing the aggregate taxable value of the property passing on the death of the deceased, the Minister made no’ deduction from the aggregate net value of such property under Section 7(1) (d) of the Act in respect of the gift made in paragraph 7 of the will to the Roman Catholic Episcopal Corporation, St. John’s, and that in making the assessment he assumed that such gift was not ‘‘absolute’’ within the meaning of that term in Section 7(1) (d) of the Act.

The Minister’s case for treating the gift as not falling within the meaning of Section 7(l)(d) is that the word ‘‘absolute’’ is used in the enactment to denote certainty that the gift will come into possession and that as so used the word means both vested and indefeasible. The appellant’s submission on the other hand is that as used in the statute the word ‘‘absolute’’ is a term of art and simply means that the gift must be made in such terms that there is no possibility of the property reverting to the donor or testator or his heirs. Applying this meaning counsel for the appellant submitted that the gift was absolute since having regard to the terms of the will and the events which have occurred there is no possibility of intestacy of that portion of the residue of the estate of the deceased given to the Roman Catholic Episcopal Corporation, St. John’s, and he went on to submit that the defeasibility of a vested gift does not deprive it of its absolute character. Both parties took the position that a right to the residue so given to the Roman Catholic Episcopal Corporation, St. John’s, became vested in that body on the death of the deceased but that such right was subject to its being divested in whole or in part of the exercise of the power set out in paragraph 8 of the will.

In my opinion the word ‘‘absolute’’ even when used in a technical sense in connection with the vesting of property may signify at least two different legal concepts. In one sense it may be used to denote the lack of limitation of the extent or duration of an interest in personal property while in another it may mean the freedom of the interest from dependence on other things or persons. The word is used in the sense of absence of limitation by Lord Cottenham, L.C. in Lassence v. Tierney (1849), 1 Mac. &

G. 551; 41 E.R. 1379 and by Lord Davey in Hancock v. Watson, [1902] A.C. 14, where in each case the contest was one between persons claiming under the donee and persons claiming as next of kin of the donor. Thus in the former case Lord Cottenham, L.C. said at p. 561 :

“If a testator leave a legacy absolutely as regards his estate, but restricts the mode of the legatee’s enjoyment of it to secure certain objects for the benefit of the legatee—upon failure of such objects, the absolute gift prevails; but if there be no absolute gift as between the legatee and the estate, but particular modes of enjoyment are prescribed, and those modes of enjoyment fail, the legacy forms part of the testator’s estate, as not having in such event been given away from it.’’

And in Hancock v. Watson Lord Davey said at p. 22:

“The appellants’ second point is that the two-fifths allotted to Susan Drake on failure of the gift over goes to the next of kin of the testator, and not to Susan’s representatives as declared by the Court of Appeal. I confess to some surprise at hearing this point treated as arguable. For, in my opinion, it is settled law that if you find an absolute gift to a legatee in the first instance, and trusts are engrafted or imposed on that absolute interest which fail, either from lapse or invalidity or any other reason, then the absolute gift takes effect so far as the trusts have failed to the exclusion of the residuary legatee or next of kin as the case may be. Of course, as Lord Cottenham pointed out in Lassence v. Tierney, if the terms of the gift are ambiguous, you may seek assistance in construing it—in saying whether it is expressed as an absolute gift or not—from the other parts of the will, including the language of the engrafted trusts. But when the Court has once determined that the first gift is in terms absolute, then if it is a share of residue (as in the present case) the next of kin are excluded in any event.”

And at p. 23:

“In other words, as between herself and the estate there is a complete severance and disposition of her share so as to exclude an intestacy, though as between her and the parties taking under the engrafted trusts she takes for life only.’’

Examples of the usage of ‘‘absolute’’ in the sense of freedom from condition or dependence on other things or persons may be found in Adamson v. Attorney-General, [1933] A.C. 257 and in Browne v. Moody, [1936] A.C. 635. In the Adamson case Lord Buckmaster said at p. 267:

“The title, which had formerly been contingent and liable to be divested, became absolute.”

And in Browne v. Moody Lord Macmillan used the word thus at p. 649 :

“The contingency of predecease ‘leaving issue’, in other words, is a resolutive, though not a suspensive condition; it does not prevent vesting a morte but it prevents that vesting from being absolute, and renders it subject to divestiture in the event of this specified contingency happening.”

The distinction between these two senses is pointed out /n re Williams ; Williams v. Williams, [1897] 2 Ch. 12, where Lindley, L.J. said at p. 21 :

‘“This case goes far to shew that the widow of the testator in this case took his property absolutely, and not for life only; and I am of opinion that she did so take. I have, moreover, no doubt that she took it absolutely in the sense of taking it free from the control of her co-trustee. But further, I think that James V.C. was right when he said, in Irvine v. Sullivan (1869), L.R. 8 Eq. 673, that ‘absolutely’ may refer to extent of interest, but it may mean a great deal more, and that its natural grammatical meaning is unfettered and unlimited, Le., unlimited in point of estate, and unfettered in respect of any consideration or trust.’’

In the Law Journal report of the case, 66 L.J. Ch. 485 at p. 488, the word ‘‘condition’’ appears in place of the word “considéra- tion’’ in the last line of the passage quoted. See also the comments of Herring, C.J. in In re Thompson; Rhoden v. Wicking, [1947] V.L.R. 60 at 67.

There being more than one sense in which the word is commonly used the problem which the present case presents is to determine in what sense the word was used in Section 7(1) (d) of the Estate Tax Act and this, it appears to me, must be resolved by reference to the context in which it is found. At the outset it may be observed that the context is not that of a deed or will but that of a taxing statute. In general the Act exacts a tax on the passing of property on death and is so worded as to include in the computation of the value of such property for the purposes of the statute both property alienated by the deceased during his lifetime by certain types of transactions and certain notional types of property as well in which the deceased never had any proprietary right, the whole without reference to the person or persons who become beneficially entitled thereto. But while the value of all such property is initially brought into the computation, the tax is imposed only in respect of the amount by which such value exceeds certain specified amounts which by Section 7 are permitted to be deducted, most of which amounts are also prescribed without reference to the person or persons who become entitled to any portion of the property. Only in respect of the amounts referred to in Section 7(1) (d) and Section 7(1) (h) does the identity of the recipient become material. Under the latter paragraph the value of property vesting in the Crown by escheat or as bona vacantia on the death of the deceased may be deducted from the aggregate. Under the former, with which this case is concerned, the value of property given to a charitable organization or to the Crown or to a public body performing a function of government may also be deducted. The intention of this provision is apparently to permit the deduction of the value of what is given to the particular recipients and with this in mind it seems to me that it is more natural to interpret the word ‘‘absolute’’ in the paragraph from the point of view of the recipient than from the point of view of the deceased and as referring to the irrevocable and undefeatable vesting of the subject matter of the gift in the recipient rather than to the unlimited extent of the interest given to the recipient. This interpretation is, I think, also supported by the concluding portion of the paragraph which reduces the deduction allowable in respect of such a gift by the amount of any tax levies which may be imposed on it or which may become payable by the donee on accepting it and to this extent limits the allowable deduction to the net value of the gift accruing to the donee. Moreover while I can see no reason why Parliament should have intended to draw a distinction between a gift of an unlimited interest and an indefeasible gift for a lesser interest and to permit deduction of the value in the one case but not in the other it is not difficult to understand that in authorizing the deduction of the value of a gift to such a body Parliament would be concerned to ensure that the deduction should not be permitted when, because of the provisions attaching to the gift, the body referred to in Section 7(1) (d) might never receive it. The word used is an apt one to make such a distinction and secure this object. I am accordingly of the opinion that the word ‘‘absolute’’ in Section 7(1) (d) should be interpreted as meaning vested and indefeasible.

Applying this interpretation to the facts of the present case, it is I think plain that the Roman Catholic Episcopal Corporation, St. John’s, did not become indefeasibly entitled on the death of the deceased to the residue given to it by paragraph 7 of the will and that because of this the gift cannot be established to have been ‘‘absolute’’ within the meaning of Section 7(1) (d).

Nor in my opinion is this result affected by the retroactive amendment to Section 7(1) (d) made by S.C. 1960, c. 29, s. 4 which came into force on July 7, 1960. By subsection (2) of Section 4 of that Act, Section 7 was amended by adding after subsection (1) a subsection numbered (la) which as made applicable by subsection (3) in the case of a person who died after 1958 and before July 7, 1960, reads as follows:

“7. (la) For the purposes of paragraph (d) of subsection (1) where any gift was made by the deceased during his lifetime or by his will,

(a) subject to a power in favour of any person to appoint the donee or donees thereof, or

(b) subject to a power in favour of any person to appropriate the whole or any part thereof for his own use or benefit,

to the extent that the power described in paragraph (a) was exercised not later than one year after the coming into force of this subsection in favour of a donee described in paragraph

(d) of subsection (1), the gift so made by the deceased shall not, by reason only of having been made as described in paragraph (a), be considered not to have been absolute and indefeasible and shall be deemed to have been made by the deceased to that donee, and to the extent of any estate or interest of a donee described in paragraph (d) of subsection

(1) in the property comprised therein that became absolute and indefeasible by virtue of the renunciation of the power described in paragraph (b) not later than one year after the coming into force of this subsection, the gift so made by the deceased shall be deemed to have been absolute and indefeasible.”

By subsection (1) of Section 4 of the same amending Act the portion of Section 7(1) (d) preceding paragraph (ii) thereof was repealed and replaced by wording which differs in some respects not material for the present purpose, from the former wording of subparagraph (i), but. which repeated the preceding portion of the paragraph in terms exactly the same as they had previously been worded save for the addition after the word “absolute” of the words ‘‘and indefeasible’’. This amendment was, however, made applicable only in the case of persons dying after the coming into force of the section on July 7, 1960.

In cases to which its wording applies the added Section 7(la) appears to me to have the effect of expanding the deductions permitted by Section 7(1) (d) so as to include not only gifts made during the lifetime of the testator or by his will, but also gifts perfected by appropriate action taken after the death of the deceased within the time limited by the subsection. It was not suggested that Section 7 (la) applies in the present situation or that the gift in question has become deductible under its terms but it was submitted that the use made by Parliament in the amending Act of 1960 of the expression ‘‘absolute and indefeasible” indicated that the expression ‘‘absolute’’ in the statute as originally enacted was intended to refer to gifts which were absolute but defeasible as well as gifts which were absolute and indefeasible. Without expressing any view as to what, if any, effect the change of expression may have in a case to which the amendment applies, I am of the opinion that the amendment has no effect on the interpretation of the wording of the Act as originally enacted in its application to gifts not falling within the scope of the amendment and that the amendment has no effect at all on the application to the present situation of the wording of the Act as originally enacted. Nor do I think that the change of the expression used by Parliament from ‘‘absolute’’ to “absolute and indefeasible’’ indicates that the expression formerly used meant anything less than vested and indefeasible.

The appeal therefore fails and it will be dismissed with costs.

Judgment accordingly.