Western Minerals Limited v. Minister of National Revenue, [1961] CTC 477, 61 DTC 1270, [1961] CTC 476

THORSON, P.:—This is an appeal against the appellant’s income tax assessment for 1952, confined to the amount of $10,488.25, being a portion of the amount of $17,123.57 which the Minister included in his final assessment of the appellant for 1952 as interest on its unpaid income tax for that year.

The amount of $10,488.25 represents interest on such unpaid income tax for the period from June 30, 1954, to January 21, 1957, and it is contended for the appellant that it is free from liability for interest for such period under the authority of Section 50(6) of the Income Tax Act, Statutes of Canada, 1948, Chapter 52, which, as amended in 1949, read as follows:

“50. (6) No interest under this section upon the amount by which the unpaid taxes exceed the amount estimated under section 41 is payable in respect of the period beginning 12 months after the day fixed by this Act for filing the return of the taxpayer’s income upon which the taxes are payable or 12 months after the return was actually filed, whichever was later, and ending 30 days from the day of mailing of the notice of the original assessment for the taxation year.’

The sole issue in the appeal is whether the appellant is entitled to the freedom from liability for interest claimed by it.

The facts are set out in an agreed admission of facts for the purposes of this cause and are not in dispute. The appellant filed its income tax return for 1952, hereinafter called the return, on June 30, 1953, which was within the time fixed by the Act for so doing. This showed $240,342.23 as the amount of income tax payable by it, which amount was paid by it without penalties. On July 22, 1953, the Minister mailed a notice of assessment to the appellant showing $240,342.24 as the amount of its income tax for 1953 and that this amount was paid. Subsequently, on December 21, 1956, the Minister mailed a notice of re-assessment to the appellant showing that its income tax for 1952 was $324,286.36. Subsequent notices of re-assessment mailed to the appellant on February 13, 1957, and July 10, 1957, showed its income tax at $316,594.34 and $308,571.81 respectively. The amount of $17,123.57 which the Minister included in his final assessment as interest on the appellant’s unpaid income tax for 1952 was based on the difference between $240,342.24 which the appellant reported in its return and $308,571.81 which the Minister levied against it on his final re-assessment.

The appellant’s claim that it is free from liability to pay interest on its unpaid income tax for the period referred to is based on the contention that the Minister did not, prior to mailing the notice of assessment of July 22, 1953, examine the appellant’s return and assess its tax for 1952 as required by Section 42(1) of the Act and that the so-called notice of assessment of July 22, 1953, was not a notice of assessment within the meaning of Section 42(2). It followed, according to the con- tention, that the assessment made by the Minister prior to the notice of re-assessment of December 21, 1956, was the original assessment within the meaning of Section 50(6) and that the appellant is, accordingly, free from liability for interest for the period therein referred to, namely, from June 380, 1954, being 12 months after the day fixed by the Act for filing the return for 1952, to January 21, 1957, being 30 days from the day of mailing the notice of the alleged original assessment of December 21, 1956.

Subsections (1) and (2) of Section 42 of the Act read as follows :

‘42. (1) The Minister shall, with all due despatch, examine each return of income and assess the tax for the taxation year and the interest and penalties, if any, payable.

(2) After examination of a return, the Minister shall send a notice of assessment to the person by whom the return was filed.”

It is essential to the success of the appellant’s claim that it be established that the Minister did not examine he appellant’s return or assess its tax for 1952 as required by Section 42(1) or make an assessment within the meaning of Section 42(2) prior to mailing the notice of assessment of July 22, 1953.

In this connection it is important to consider the facts. They are set out in detail in the agreed admission of facts to which I have referred but a summary of them will be sufficient. When the appellant’s return of June 30, 1953, was received by a mail clerk in the Calgary District Taxation Office he delivered it to a cashier in the office to detach the cheque for $15,742.24 that was enclosed with it. The cashier arranged for the deposit of the cheque and initialled the return immediately below the figure $15,742.24 to indicate receipt of the cheque and forwarded the return to the Assessment Branch of the Calgary District Taxation Office. A clerk in the branch received it, placed it in the general sortation and handed it to Mr. G. Brown, an assessor in the branch. Mr. Brown checked the mathematical computations on page 1 of the return to ensure their accuracy. In the lower lefthand corner of page 1 he wrote the figure $240,342.24 and added other notations, including the letters NA and the word NIL. Then he signed the return over the words Corporation Income Tax Return and had it delivered to Mr. L. Beach, another assessor in the branch, who did virtually the same work as that which he had done to ensure that he had not made any errors. Mr. Beach then sent the return to a typist who used the information on page 1 to type the notice of assessment of July 22, 1953. This notice was on a form carrying the printed signature of Mr. Beach showing that the amounts on the notice had been verified by him before it was mailed. The combined time spent by Mr. Brown and Mr. Beach in working on the return prior to mailing the notice of assessment would not exceed 15 minutes. All other work done by the employees of the Calgary District Taxation Office prior to mailing the notice was mechanical and routine work such as writing out receipts and delivering the return to various persons and places. When Mr. Brown performed the work to which I have referred he wrote the letter “R” in the lower right hand corner of page 1 of the return. In view of the importance which counsel for the appellant attached to this act I set out paragraph 16 of the agreed admission of facts in full:

“16. The letter ‘R’ is an abbreviation of the word review. By marking this ‘Return’ with the letter ‘R’, it was thereby segregated to ensure that it would be further examined in the manner hereinafter described. That is, prior to and at the time of mailing the original Notice of Assessment, referred to in paragraph 3 hereof, it had been decided by the officers and employees of the Department of National Revenue to conduct a further examination of the ‘Return’ as hereinafter described.”

After the original notice of assessment of July 22, 1953, was mailed to return was placed in the files of the Calgary District Taxation Office.

I now refer to the facts of what was done prior to mailing the notice of re-assessment of December 21, 1956. Prior to that date the return was withdrawn from the files and examined by Mr. Olsen, an assessor in the Calgary District Taxation Office. He reviewed certain exhibits forming part of the return at the time it was filed. They are specified in the admission of facts and need not be detailed in this summary. Mr. Olsen also obtained further information relating to the appellant’s income tax for 1952 by examining its records and books and talking to its officers and servants. As a consequence of his work the notice of re-assessment of December 21, 1956, was mailed showing that the appellant had been assessed an additional tax of $83,944.12. This was levied as the result of disallowing certain deductions claimed by the appellant in its return, the details of which are set out in paragraph 21 of the admission of facts. It was agreed that Mr. Brown, Mr. Beach and Mr. Olsen are or were employees of the Department of National Revenue and acted within the course and scope of their employment in performing the acts referred to.

In Provincial Paper Ltd. v. M.N.R., [1955] Ex. C.R. 33; [1954] C.T.C. 367, I had occasion to consider an issue similar to that raised in the present case. There the facts were that on July 27, 1951, the Minister sent the appellant a ‘‘notice of assessment’’ for the year 1950 showing the same amount of tax levied as it had shown on its return and that on January 27, 1953, he sent the appellant a ‘‘notice of re-assessment” for the same year showing a balance of tax unpaid and interest thereon from July 1, 1951, to January 27, 1953. The appellant contended that under Section 50(6) of the Income Tax Act interest was payable only from July 1, 1951, to June 30, 1952, on the grounds that the Minister did not examine its income tax return within the meaning of Section 42(1) of the Act and did not assess the tax for the taxation year or the interest payable by it within the meaning of the section and that, consequently, the notice dated July 27, 1951, was not a notice of assessment since there had not been an assessment prior to that date and that the notice dated January 27, 1953, was really the original assessment within the meaning of Section 50(6). The contention was that the acceptance of the appellant’s return, subject only to the checking of its computations, was not an assessment within the meaning of the Act. I rejected the contention thus put forward and held, as set out in the headnote of the case, as follows:

“ Held: That it is not for the Court or anyone else to prescribe what the intensity of the examination of a taxpayer’s return in any given case should be. That is exclusively a matter for the Minister, acting through his appropriate officers, to decide.

2. That there is no standard in the Act or elsewhere, either express or implied, fixing the essential requirements of an assessment. It is exclusively for the Minister to decide how he should, in any given case, ascertain and fix the liability of a taxpayer. The extent of the investigation he should make, if any, is for him to decide.

3. That the Minister may properly decide to accept a taxpayer’s income tax return as a correct statement of his taxable income and merely check the computations of tax in it and without any further examination or investigation fix his tax liability accordingly. If he does so it cannot be said that he has not made an assessment.”

My reasons for judgment and my findings in the Provincial Paper Ltd. case are, mutatis mutandis, applicable in the present case and I incorporate them accordingly in these reasons for judgment.

The decision in the Provincial Paper Ltd. case was followed and applied by Cameron, J., in Western Leaseholds Ltd. and Western Minerals Ltd. v. M.N.R., [1958] Ex. C.R. 277 at page 307 ; [1958] C.T.C. 257 at page 286.

Counsel for the appellant did not quarrel with the views expressed in the cases referred to but contended that the facts in the present case distinguish it from them. His submission was that there was evidence before the Court different from that before it in the cases referred to, namely, that at the time the notice of assessment of July 22, 1953, was sent it was the Minister’s intention to conduct a further examination of the appellant’s return for the purpose of ascertaining its taxable income and assessing it accordingly. In support of this submission he relied on paragraph 16 of the statement of facts. He contended that the words "‘examine'' and assess” in Section 42(1) imply that before a notice of assessment is sent out within the meaning of Section 42(2) there must have been a definite and completed examination and assessment, and that there had not been such an examination or assessment prior to the notice of assessment of July 22, 1953. His basic submission was that before the Minister can send a valid notice of assessment he must do all that he has in mind to do to examine the taxpayer’s return and assess to tax, that in order that an assessment be valid it must be definite and not provisional or tentative, that when Mr. Brown marked the return with an "R‘‘ he segregated it for review and further examination and assessment, and that it was not until after Mr. Olsen had completed his work prior to mailing the notice of re-assessment of December 21, 1956, that there had been the original assessment that was contemplated by Section 50(6).

I have examined the decisions in The King v. Deputy Federal Commissioner of Taxation (S.A.) ; Ex Parte Hooper (1925-26), 37 C.L.R. 368, and Federal Commissioner of Taxation v. H off- nun g c Co. Ltd. (1928-30), 42 C.L.R. 39, on which counsel relied in support of his submission, and am of the opinion that they have no bearing on the issue in the present case.

I am unable to accept the submission of counsel for the appellant that the facts of this case distinguish it from the Provincial Paper Ltd. case (supra) or the Western Leaseholds Ltd. case (supra) so far as the latter relates to the issue under consideration. The fact that the appellant’s return was segregated for review and further examination does not invalidate the assessment made prior to the notice of assessment of July 22, 1953. The examination of the return was complete notwithstanding the marking of it with an "R‘‘ for further examination. The so-called quick assessment was a valid assessment. For reasons similar to those given in the Provincial Paper Ltd. case (supra) I find that the Minister examined the return and assessed the tax as required by Section 42(1) of the Act and that when the notice of assessment of July 22, 1953, was sent there had been an assessment within the meaning of the Act. Consequently, the appellant is not entitled to the freedom from interest claimed by it.

In view of this finding it is not necessary to consider the fact that Section 50(6) of the Act, which became Section 54(6) of the Income Tax Act, R.S.C. 1952, Chapter 148, was repealed in 1955.

It follows from what I have said that the appeal herein must be dismissed with costs.

Judgment accordingly.