CAMERON,
J.:—This
is
an
appeal
from
a
decision
of
the
Income
Tax
Appeal
Board
dated
April
9,
1953,
which
disallowed
an
appeal
by
the
appellant
from
an
assessment
made
upon
it
for
its
taxation
year
1950.
By
that
assessment,
dated
February
1,
1952,
there
was
added
to
the
declared
income
of
the
appellant
the
sum
of
$737.26
received
by
it
in
that
year
from
the
Yorkshire
and
Canadian
Trust
Limited,
under
the
circumstances
presently
to
be
mentioned,
and
which
amount
the
appellant
had
claimed
as
a
deduction
under
Section
27(1)
of
the
Income
Tax
Act.
The
facts
are
not
in
dispute.
The
appellant
is
a
company
incorporated
under
the
laws
of
the
Province
of
British
Columbia,
and
carries
on
business
as
the
administrator
of
certain
fixed
investment
trusts
known
as
Trans-Canada
Shares,
Series
“A”,
Series
‘‘B’’,
and
Series
‘‘C’’.
The
trust
known
as
Trans-Canada
Shares
Series
‘‘B’’
was
constituted
and
is
governed
by
an
agreement
dated
September
1,
1944
(Exhibit
1),
the
parties
thereto
being
(a)
the
Administrator
of
the
Trust,
the
appellant
herein;
(b)
the
Trustee,
the
Yorkshire
and
Canadian
Trust
Limited;
and
(c)
the
holders
of
certificates
representing
Trans-Canada
Shares
Series
“B”.
The
plan
of
operation
was
as
follows.
The
appellant,
as
administrator
of
the
Trust,
from
time
to
time
purchased
a
fixed
number
of
common
shares
in
fifteen
selected
Canadian
corporations
(called
a
1
‘Trust
Unit’’),
endorsed
the
share
certificates
in
favour
of
the
Yorkshire
and
Canadian
Trust
Limited
(hereinafter
to
be
called
‘‘the
Trustee”),
and
delivered
them
so
endorsed
to
the
Trustee,
which
thereupon
registered
them
in
its
own
name.
Upon
the
deposit
with
it
of
one
‘‘Trust
Unit’’
as
aforesaid,
the
Trustee
issued
certificates
representing
1,000
undivided
one-
thousandths’
interest
in
the
“Trust
Unit’’,
each
of
such
interests
being
termed
a
Trans-Canada
Share
Series
‘‘B’’.
These
certificates,
so
issued
by
and
in
the
name
of
the
Trustee,
were
in
two
forms:
(a)
certificates
which
are
registered
on
the
books
of
the
Trustee
in
the
name
of
the
registered
owner;
and
(b)
bearer
certificates
which
are
not
registered
on
the
books
of
the
company,
but
which
are
negotiable
and
passed
by
delivery.
Attached
to
these
is
a
series
of
coupons
which
entitle
the
holder
thereof,
upon
surrender
on
the
semi-annual
dates
mentioned,
to
receive
the
proportion
of
the
income
from
the
‘‘Trust
Unit’’
to
which
he
is
entitled.
The
certificates
when
issued
by
the
Trustee
were
in
the
denominations
requested
by
the
administrator,
were
then
delivered
by
the
latter
to
the
various
purchasers
thereof.
Exhibits
2
and
3
are
respectively
samples
of
the
registered
and
bearer
certificates
so
issued.
The
Trustee,
as
the
registered
owner
of
the
shares
in
the
fifteen
companies
(which
I
shall
hereafter
refer
to
as
the
“underlying
companies’’),
received
all
dividends
paid
thereon,
and
on
March
1
and
September
1
in
each
year,
as
required
by
the
said
Trust
Agreement,
distributed
its
net
income
therefrom
to
the
holders
of
the
Series
“B”
certificates,
after
deducting
therefrom
the
various
charges
specified
in
the
agreement,
which
were
as
follows
:
(a)
a
fixed
fee
to
the
administrator;
(b)
its
own
charges;
(c)
taxes
and
other
Governmental
charges;
(d)
a
reserve
fund
for
contingent
tax
liability.
I
understand,
however,
that
no
such
reserve
was
set
up
at
any
time.
In
the
case
of
registered
owners
of
the
Series
“B”
certificates.
payment
was
made
by
the
special
cheque
of
the
Trustee,
which
was
headed
“Trans-Canada
Shares
Series
‘B’—semi-annual
dis
tribution
of
income’’.
In
the
case
of
those
holding
bearer
certr
ficates,
payment
was
made
to
an
individual,
bank
or
trust
company
surrendering
the
semi-annual
coupon.
In
1950,
the
appellant
held
as
its
own
property
a
certificate
for
1,000
shares
of
Series
“B”,
and
in
respect
of
thereof
received
from
the
Trustee
the
sum
of
$737.26.
These
cheques
(Exhibit
4)
are
for
an
amount
in
excess
of
that
figure,
but
nothing
hinges
on
that
difference.
In
its
tax
return
it
showed
the
receipt
of
that
amount
but
claimed
that
it
was
deductible
under
the
provisions
of
Section
27(1)
of
the
Income
Tax
Act,
which
is
as
follows:
“27.
(1)
Where
a
corporation
in
a
taxation
year
received
a
dividend
from
a
corporation
that
(a)
was
resident
in
Canada
in
the
year
and
was
not,
by
virtue
of
a
statutory
provision,
exempt
from
tax
under
this
Part
for
the
year,
an
amount
equal
to
the
dividend
minus
any
amount
deducted
under
subsection
(2)
of
section
11
in
computing
the
receiving
corporation’s
income
may
be
deducted
from
the
income
of
that
corporation
for
the
year
for
the
purpose
of
determining
the
taxable
income.’’
The
respondent,
however,
being
of
the
opinion
that
the
said
sum
was
not
a
dividend
or
the
sum
of
dividends
received
from
the
corporation
that
was
resident
in
Canada,
disallowed
the
said
deduction
and
added
that
amount
to
the
appellant’s
taxable
income.
Then
followed
the
appeal
to
the
Income
Tax
Appeal
Board,
and
later
to
this
Court.
At
the
hearing
it
was
conceded
that
each
of
the
‘‘underlying
companies”
which
paid
the
dividends
to
the
Trustee
was
a
corporation
that
was
resident
in
Canada
in
1950,
and
was
not,
by
virtue
of
a
statutory
exemption,
exempt
from
taxation
under
Part
I
of
the
Act
for
the
year
1950.
It
follows,
therefore,
that
if
the
appellant
corporation
had
been
the
registered
owner
of
the
shares
in
the
‘‘underlying
companies
’
’,
and
as
a
consequence
had
received
the
dividends
directly
from
them,
it
would
have
been
entitled
to
deduct
the
amount
of
such
dividends
in
computing
its
taxable
income.
Is
its
position
otherwise
because
of
the
particular
facts
of
this
case?
Counsel
for
the
appellant—on
whom
the
onus
lies—submits
that,
notwithstanding
the
intervention
of
the
Trustee,
that
which
the
appellant
received
was
a
dividend
from
a
corporation
resident
in
Canada
and
that
the
appellant
received
it
from
that
corporation.
The
respondent
denies
that
when
received
by
the
appellant
it
had
the
quality
or
characteristics
of
such
a
dividend;
and
that
even
if
it
were
found
to
be
such,
the
appellant
received
it
from
the
Trustee
and
not
from
the
‘‘underlying
companies’’.
Firstly
was
it
a
dividend
from
a
Canadian
corporation
not
exempt
from
taxation?
In
considering
this
question,
I
must
elaborate
somewhat
on
the
facts
disclosed
in
evidence.
The
Trust
established
under
the
provisions
of
the
Trust
Agreement
(Exhibit
1)
is
a
fixed
investment
trust.
The
names
of
the
“underlying
companies’’
and
the
number
of
shares
in
each,
which
together
make
up
a
‘‘Trust
Unit’’,
are
set
out
in
the
agreement.
They
cannot
be
changed
by
the
Trustee
except
upon
the
direction
of
the
administrator
who
has
certain
limited
powers
to
direct
sales
of
portions
thereof,
and
in
that
case
the
proceeds
are
held
on
deposit
in
a
chartered
bank
or
invested
in
Government
bonds
until
the
administrator
directs
the
Trustee
to
purchase
therewith
shares
in
some
one
or
more
of
the
named
‘‘underlying
companies”,
but
not
otherwise.
By
Clause
34
of
the
agreement,
it
is
provided
that
the
holder
of
certificates
representing
in
the
aggregate
200
Series
“B”
shares,
or
any
multiple
thereof,
is
entitled
upon
surrender
of
his
certificates
to
the
Trustee
to
require
the
latter
to
either
(a)
sell
forthwith
the
shares
of
stock
in
the
‘‘underlying
companies’’
then
constituting
one-fifth
of
a
‘‘Trust
Unit’’,
or
the
proper
multiple
thereof,
and
pay
over
the
proceeds
to
him;
or
(b)
to
transfer
to
him
duly
endorsed,
stock
certificates
representing
one-fifth
(or
the
proper
multiple
thereof),
representing
the
proportionate
part
applicable
to
his
shares
of
stock
in
the
“underlying
companies’’
held
by
the
Trustee.
These
facts
were
known
to
a
purchaser
of
the
Series
“B”
certificates,
not
only
because
he
became
a
party
to
the
agreement
upon
subscribing
for
shares,
but
also
because
the
information
was
given
to
him
in
a
summary
forming
part
of
the
certificate
itself.
At
the
time
of
the
semi-annual
distribution
of
income,
a
registered
owner
of
the
certificate
was
furnished
with
a
statement
showing
precisely
the
shares
held
by
the
trustee
in
respect
of
each
‘‘Trust
Unit’’.
It
is
also
shown
that
the
Trustee
took
meticulous
care
to
ensure
that
the
stocks
in
the
‘‘underlying
companies’’
represented
in
each
‘‘Trust
Unit’’
were
kept
separate
from
all
others.
When
dividends
were
received,
they
were
immediately
placed
in
a
special
Series
‘‘B’’
Trust
Account
and
all
distributions
made,
whether
to
registered
owners
or
to
those
holding
bearer
certificates,
were
paid
out
of
that
account.
From
these
facts,
and
particularly
because
he
could
at
any
time
demand
that
the
Trustee
deliver
to
him
his
proper
proportion
of
the
shares
in
the
‘‘underlying
companies’’,
it
seems
to
me
that
the
holder
of
the
Series
“B”
certificate
was,
in
fact,
the
beneficial
owner
of
the
basic
shares
represented
thereby.
While
he
was
not
the
registered
owner,
and
although
the
administrator
had
the
right
to
vote
the
said
shares
at
any
meeting
of
the
‘‘
underlying
companies’’,
no
one
other
than
the
holder
of
Series
“B”
certificates
had
any
beneficial
interest
in
such
shares.
The
number
of
shares
to
which
he
was
entitled
in
each
company
was
fixed
at
the
time
he
purchased
the
certificates,
remained
the
same
throughout,
and
he
was
entitled
to
physical
possession
thereof,
upon
demand.
Under
these
circumstances
I
do
not
think
that
the
amounts
which
the
appellant
received
were
other
than
dividends
from
the
‘‘underlying
companies’’.
The
majority
decision
of
the
House
of
Lords
in
Archer-Shee
v.
Baker,
[1927]
A.C.
844,
strongly
supports
that
view.
There
the
appellant’s
wife,
resident
in
the
United
Kingdom,
was
the
life
tenant
of
a
trust
fund
under
an
American
will,
the
trustees
of
which
were
resident
in
New
York.
The
trust
fund
consisted
entirely
of
foreign
government
securities,
foreign
stocks
and
shares,
and
other
foreign
property,
the
trustees
having
powers
of
sale
and
reinvestment.
The
income
from
the
fund
was
paid
by
the
trustees
to
the
order
of
the
appellant’s
wife
at
a
New
York
bank.
The
issue
in
the
appeal
against
the
assessment
levied
against
the
appellant
in
respect
of
his
wife’s
income
was
whether
such
income
arose
from
the
specific
securities,
stocks
and
shares,
and
other
property
constituting
the
trust
fund
or
from
‘‘
possessions
out
of
the
United
Kingdom
other
than
stocks,
shares
or
rents’’.
The
House
of
Lords,
reversing
the
Court
of
Appeal,
held
that
the
appellant’s
wife
was
the
beneficial
owner
of
the
securities,
stocks
and
shares,
and
other
property
constituting
the
trust
fund
and
was
entitled
to
receive
and
did
receive
the
interest
and
dividends
thereof.
In
coming
to
this
view
they
assumed
that
the
law
of
trusts
on
this
point
was
the
same
in
New
York
as
in
England.
That
this
assumption
was
erroneous
was
shown
by
their
subsequent
decision
in
Garland
v.
Archer-Shee
(1930),
15
T.C.
693;
[1931]
A.C.
212.
That
fact,
however,
does
not
affect
the
applicability
of
the
decision
in
the
first
Archer-Shee
case
(supra)
to
the
facts
of
the
present
case,
it
being
assumed
that
the
law
of
trusts
on
this
point
in
British
Columbia
is
the
same
as
that
of
England
as
laid
down
in
the
first
Archer-Shee
case.
In
the
first
Archer-Shee
case,
Lord
Wrenbury
said
at
p.
866
:
“I
have
to
read
the
will
and
see
what
is
Lady
Archer-Shee’s
right
of
property
in
certain
unascertained
securities,
stocks
and
shares
now
held
by
the
Trust
Company
‘to
the
use
of
my
said
daughter’.
It
is,
I
think,
if
the
law
in
America
is
the
same
as
our
law,
an
equitable
right
in
possession
to
receive
during
her
life
the
proceeds
of
the
shares
and
stocks
of
which
she
is
tenant
for
life.
Her
right
is
not
to
a
balance
sum,
but
to
the
dividends
subject
to
deductions
as
above
mentioned.
Her
right
under
the
will
is
‘property’
from
which
income
is
derived.
’
’
And
Lord
Carson,
in
the
same
case,
said
at
p.
870:
‘‘In
my
opinion
upon
the
construction
of
the
will
of
Alfred
Pell
once
the
residue
had
become
specifically
ascertained,
the
respondent’s
wife
was
sole
beneficial
owner
of
the
interest
and
dividends
of
all
the
securities,
stocks
and
shares
forming
part
of
the
trust
fund
therein
settled
and
was
entitled
to
receive
and
did
receive
such
interest
and
dividends.
This,
I
think,
follows
from
the
decision
of
this
House
in
Williams
v.
Singer,
[1921]
1
A.C.
65,
and
in
my
opinion
the
Master
of
Rolls
correctly
stated
the
law
when
he
said
([1927]
1
K.B.
123)
'that
in
considering
sums
which
are
placed
in
the
hands
of
trustees
for
the
purpose
of
paying
income
to
beneficiaries,
for
the
purposes
of
the
Income
Tax
Acts,
you
may
eliminate
the
trustees.
The
income
is
the
income
of
the
beneficiaries;
the
income
does
not
belong
to
the
trustees’.’’
And,
at
p.
871
:
“My
Lords,
I
am
unable
to
understand
why
or
how
the
character
of
the
sum
paid
to
the
respondent’s
wife
ever
became
changed
or,
as
the
Master
of
Rolls
graphically
says,
‘was
no
longer
clothed
in
the
form
in
which
it
was
originally
received,
having
no
trace
of
its
ancestry’,
simply
because
the
deductions
due
by
law
have
been
made
and
because
it
has
been
mixed
up
with
other
trust
moneys
by
the
trustees.
It
is,
in
my
view,
in
the
same
position
as
if
the
trustees
had
arranged
to
have
the
interest
and
dividends
paid
direct
to
the
respondent’s
wife
and
she
had
discharged
the
necessary
outgoings
in
accordance
with
the
law.
Whether
the
necessary
outgoings
according
to
law
were
discharged
by
the
trustees
or
by
the
cestui
que
trust
cannot,
in
my
opinion,
make
any
difference.
I
think
the
appeal
should
be
allowed,
.
.
.’’
Reference
may
also
be
made
to
Pan-American
Trust
Company
v.
M.N.R.,
[1949]
Ex.
C.R.
265;
[1949]
C.T.C.
229,
in
which
the
President
of
this
Court
considered
the
first
Archer-Shee
case
and
followed
the
principles
therein
laid
down.
Reference
may
also
be
made
to
Kemp
v.
Minister
of
National
Revenue,
[1948]
1
D.L.R.
65;
[1947]
C.T.C.
343;
to
Nelson
v.
Adamson,
[1941]
2
K.B.
12;
and
to
Syme
v.
Commissioner
of
Taxes,
[1914]
A.C.
1013.
On
the
principles
laid
down
in
these
cases,
I
reach
the
conclusion
that
what
the
appellant
was
entitled
to
receive
and
did,
in
fact,
receive,
was
the
dividends
of
the
various
Canadian
companies.
The
second
question
is
whether,
being
a
dividend
as
I
have
found
it
to
be,
it
was
received
from
a
Canadian
corporation.
Counsel
for
the
respondent
contends
that
the
language
of
the
section
requires
that
it
must
have
come
directly
from
a
Canadian
corporation
to
the
appellant,
and
that
as
it
was
paid
in
the
first
instance
to
the
Trustee,
and
then
by
the
latter
to
the
appellant,
it
was
not,
in
fact,
received
from
a
Canadian
corporation.
He
submits
that
while
it
may
have
been
derived
from
a
Canadian
corporation,
it
was
not
received
from
a
Canadian
corporation.
I
agree
that
it
is
possible
to
interpret
the
language
of
the
section
as
requiring
that
the
dividend
must
have
been
received
directly
from
the
paying
corporation.
But
in
my
view,
there
is
another
interpretation
that
may
be
put
upon
it,
an
interpretation
which
I
think
is
more
consonant
with
the
intention
of
Parliament
as
I
deem
it
to
be
from
the
language
itself.
In
Caledoman
Railway
v.
North
British
Railway
(1881),
6
App.
Cas.
114,
Lord
Selborne
said
at
p.
122
:
“The
more
literal
construction
of
a
statute
ought
not
to
prevail
if
it
is
opposed
to
the
intentions
of
the
Legislature
as
apparent
by
the
statute,
and
if
the
words
are
sufficiently
flexible
to
admit
of
some
other
construction
by
which
the
intention
can
be
better
effectuated.’’
Again,
in
Shannon
Realties
v.
St.
Michel,
[1924]
A.C.
192,
it
was
stated
that
if
the
words
used
are
ambiguous,
the
Court
should
choose
an
interpretation
which
will
be
consistent
with
the
smooth
working
of
the
system
which
the
statute
purports
to
be
regulating.
Now,
from
a
perusal
of
the
words
of
the
section,
it
seems
clear
that
the
purpose
of
the
enactment
was
to
reduce
the
number
of
taxes
on
corporate
earnings.
Such
earnings
are
ordinarily
subject
to
taxation
when
earned
by
a
corporation,
and
again
when
ultimately
distributed
by
way
of
dividend
to
shareholders
who
are
individuals.
Were
it
not
for
the
provisions
of
Section
27(1),
there
would
be
a
further
tax
on
such
earnings
when
they
were
passed
from
one
corporation
to
another
by
way
of
dividends.
To
carry
out
that
intention
it
was
necessary
to
limit
the
deduction
to
corporations—and
that
was
done.
It
was
also
necessary
to
provide
that
it
related
to
a
dividend,
and
that
that
dividend
issued
or
came
from
a
corporation
resident
in
Canada
and
which
was
not
exempt
from
tax—and
that
was
done
in
apt
language.
If
the
purpose
of
Parliament
was
as
I
have
stated,
then
it
was
not
necessary
in
order
to
carry
out
that
purpose,
to
require
that
the
dividend
must
have
been
received
directly
from
the
paying
corporation.
In
fact,
such
a
requirement
would
have
drastically
curtailed
the
relief
to
corporate
taxpayers
which
I
think
it
was
intended
to
grant
to
them.
It
seems
to
me
that
counsel
for
the
respondent,
in
submitting
that
the
dividend
must
have
been
‘‘received
from’
’
a
corporation,
has
placed
the
emphasis
in
the
wrong
place.
In
my
view,
the
important
matter
is
that
the
dividend
shall
have
come
from
a
Canadian
corporation
and
that
the
emphasis
should
therefore
be
placed
on
a
“dividend
from
a
corporation’’.
In
my
opinion,
the
appellant
did
receive
a
dividend
from
Canadian
corporations—namely,
the
‘‘underlying
companies’’—
notwithstanding
the
fact
that
the
dividends
were
paid
in
the
first
instance
to
the
Yorkshire
and
Canadian
Trust
Limited,
which
company,
in
my
opinion,
was
nothing
more
than
a
trustee
for
the
appellant
and
other
owners
of
Series
‘‘B’’
certificates
to
hold
the
shares
to
which
they
were
severally
entitled,
to
receive
the
dividends
thereon,
to
distribute
the
income
semi-annually,
and
upon
demand
made
to
deliver
the
proper
numbers
of
shares
in
the
‘‘underlying
companies’’,
or
their
proceeds
if
sold,
upon
the
instructions
of
the
holder.
For
these
reasons
the
appellant
is
entitled
to
succeed.
I
should
note
that
in
the
Notice
of
Appeal
the
appellant,
as
an
alternative
to
its
main
appeal,
submitted
that
if
it
were
not
successful
in
the
main
appeal,
it
was
entitled
to
a
deduction
for
depletion
in
respect
of
the
said
dividends
in
the
sum
of
$50.87.
While
that
right
was
denied
in
the
respondent’s
reply,
his
counsel
at
the
trial
conceded
that
he
could
not
support
the
finding
of
the
Income
Tax
Appeal
Board
on
that
point
and
conceded
the
appellant’s
right
to
that
deduction.
I
merely
note
that
matter
for,
in
view
of
my
finding
that
the
appellant
is
entitled
to
the
full
deduction
on
its
main
claim,
it
cannot
receive
the
deduction
for
depletion
also.
There
will
therefore
be
judgment
allowing
the
appeal
on
the
main
issue;
the
decision
of
the
Income
Tax
Appeal
Board
will
be
set
aside,
and
the
matter
referred
back
to
the
respondent
to
re-assess
the
appellant
in
accordance
with
my
findings.
The
appellant
is
entitled
to
its
costs
after
taxation.
Judgment
accordingly.