CAMERON,
J.:—In
this
matter
the
appellant
appeals
from
an
assessment
to
income
tax
dated
September
25,
1951,
in
respect
of
the
taxation
year
1949.
There
is
no
dispute
whatever
as
to
the
facts,
all
of
which
have
been
agreed
to
by
the
parties
and
are
set
out
in
the
Agreement
filed
as
Exhibit
1.
By
the
terms
of
a
certain
Petroleum
and
Natural
Gas
Lease
dated
July,
1947,
and
which
forms
part
of
Exhibit
2,
there
was
reserved
to
the
lessor
therein,
one
John
D.
Rebus,
a
gross
royalty
in
cash
of
twelve
and
one
half
per
cent
of
production
of
the
leased
substances
produced,
saved
and
marketed
from
the
lands
mentioned,
namely
the
northwest
quarter
of
Section
23,
Township
50,
Range
26
west
of
the
4th
Meridian
in
the
Province
of
Alberta.
By
the
terms
of
a
supplementary
agreement
dated
August
16,
1947,
which
also
forms
part
of
Exhibit
2,
the
members
of
the
Rebus
family
settled
their
differences
as
to
their
respective
interests
in
the
said
property
and
in
the
royalty
reserved
in
the
said
lease.
Inter
alia
it
was
agreed
that
the
said
royalty
should
thereafter
be
paid
to
the
National
Trust
Company
as
trustee,
which
company
was
thereupon
to
divide
the
same
in
ten
equal
shares
between
the
ten
individuals
named
therein,
of
whom
the
appellant
was
one.
The
appellant
thereupon
became
beneficially
entitled
to
one-tenth
of
the
twelve
and
one-half
per
cent
gross
royalty
reserved
in
the
lease.
Oil
was
found
upon
the
property
and
in
the
years
1947
and
1948
the
appellant
received
certain
royalties
which
were
duly
accounted
for
in
his
income
tax
returns
for
those
years.
In
his
return
for
the
year
1949,
the
appellant
stated
that
in
that
year
he
had
received
the
sum
of
$26,109.13
as
royalty
receipts.
For
the
reason
which
will
later
be
referred
to,
he
claimed
that
$21,760.00
of
that
amount
was
referrable
to
royalties
in
respect
of
the
excess
of
oil
produced
beyond
the
amount
which
had
been
fixed
by
the
Petroleum
and
Natural
Gas
Conservation
Board
of
the
Province
of
Alberta
for
that
property
in
that
year,
an
amount
generally
referred
to
as
the
“allowable”.
In
respect
to
that
amount
of
$21,760.00
he
claimed
‘‘exhausted
depletion’’
of
75
per
cent,
or
the
sum
of
$16,320.00,
and
stated
his
taxable
royalties
at
$9,789.13.
The
respondent,
in
assessing
the
appellant,
added
that
sum
of
$16,320.00
to
the
declared
income
on
the
ground
that
that
income
was
taxable
in
the
year
in
which
it
was
received,
and
assessed
him
accordingly.
The
present
appeal
followed.
The
lease
in
question
was
at
all
relevant
times
held
by
the
Atlantic
Oil
Company
Limited.
By
1948,
two
wells
had
been
drilled
and
brought
into
production.
In
that
year
when
a
third
well,
Atlantic
No.
3,
was
being
drilled,
it
blew
out
of
control.
The
Petroleum
and
Natural
Gas
Conservation
Board
(hereinafter
to
be
called
the
‘‘Board’’)
under
powers
conferred
on
it,
immediately
took
over
control
of
the
property,
brought
the
well
under
control,
salvaged
and
sold
the
very
large
quantities
of
oil
which
were
produced
while
the
well
was
out
of
control.
On
December
21,
1948,
Alberta
Order-in-Council
No.
1495/48
was
passed.
After
reciting
the
powers
previously
held
by
the
Board
under
The
Oil
and
Gas
Resources
Conservation
Act
and
that
the
Board
had
taken
possession
of
the
property
in
and
about
Atlantic
No.
3
well
for
the
purpose
of
bringing
it
under
control
and
controlling
and
conserving
the
gas
and
the
flow
of
oil,
and
had
marketed
the
oil
and
placed
the
proceeds
in
a
special
trust
account,
and
that
it
was
desirable
to
pay
the
costs
incurred
by
the
Board
and
to
endeavour
to
settle
all
claims
against
the
company
and
to
settle
claims
of
persons
entitled
to
a
royalty
on
production
from
wells
1,
2
and
3,
the
Order-in-Council
proceeded
to
confer
on
the
Board
power
to
(1)
Pay
out
of
the
fund
now
held
in
the
name
of
the
Petroleum
and
Natural
Gas
Conservation
Board
in
trust
and
rep-
resenting
the
proceeds
of
the
sale
of
petroleum
from
Atlantic
No.
3
well
the
costs
and
expenses
of
and
incidental
to
the
proceedings
taken
by
the
Board
to
control
the
gas
flow
in
the
said
well
and
the
flow
of
petroleum
therefrom;
(2)
Pay
out
of
the
said
funds
such
sums
as
may
be
required
to
give
effect
to
any
settlement
approved
by
the
Board
arrived
at
between
the
Atlantic
Oil
Company
Limited
and
any
claimant
and
claimants
that
may
have
a
claim
against
the
Atlantic
Oil
Company
Limited
arising
directly
or
indirectly
from
the
Atlantic
No.
3
well
blow-out,
whether
recoverable
as
a
debt
or
damages
or
otherwise
howsoever,
other
than
a
claim
arising
from
an
interest
in
mines
and
minerals;
(3)
Pay
out
of
the
said
fund
to
any
person
entitled
to
a
royalty
on
production
from
the
Numbers
1,
2
and
3
wells
of
the
Atlantic
Oil
Company
Limited
such
royalty
as
in
the
opinion
of
the
Board
would
have
been
received
by
such
person
if
the
Atlantic
Number
3
Oil
Well
had
not
blown
out
of
control
and
if
the
said
wells
had
produced
at
a
rate
equivalent
to
the
actual
rate
of
production
allowed
by
the
Board
to
similar
wells
belonging
to
other
companies
in
the
same
field
at
the
same
time.
The
said
additional
powers
were
expressly
stated
to
be
subject
to
ratification
by
the
Legislature
at
its
next
regular
sittings.
At
that
session
there
was
enacted
An
Act
to
Determine
All
Claims
Arising
from
the
Atlantic
Number
3
Oil
Well
Disaster
(chapter
17).
The
preamble
recites
that
numerous
claims
had
arisen
directly
and
indirectly
from
the
disaster
and
from
the
measures
taken
by
the
Board
to
bring
it
under
control,
the
technical
difficulties
involved
in
the
determination
of
liability
and
the
assessment
of
damages
common
to
many
of
the
claims,
the
impracticability
of
dealing
with
them
individually
and
the
desirability
in
the
public
interest
to
determine
all
such
claims.
It
further
recites
that
the
Board
had
held
meetings
attended
by
representatives
of
the
company
and
other
producers
in
the
field
affected
by
the
disaster
for
the
purpose
of
determining
all
such
claims;
and
that
it
was
desirable
and
expedient
to
implement
the
settlement
of
claims
adopted
at
such
a
meeting
held
on
January
26,
1949.
Certain
specific
powers
were
conferred
upon
the
Board.
It
was
authorized
to
make
provision
out
of
the
trust
fund,
into
which
the
proceeds
of
the
sale
of
oil
had
been
placed,
for
its
own
past
and
future
expenses,
and,
out
of
the
same
fund,
to
provide
for
payment
of
“3.
(c)
The
payment
of
such
sums
of
money
as
may
be
required
to
give
effect
to
any
settlement
approved
by
the
Board
and
arrived
at
between
the
company
and
any
claimant
who
may
have
a
claim
against
the
company,
provided
that
if
the
parties
cannot
agree
upon
a
settlement
the
Board
may,
in
its
discretion,
pay
to
the
claimant
such
amount,
if
any,
in
settlement
of
the
claim
as
the
Board
may
consider
to
be
just
and
equitable
;
(d)
The
payment
to
the
company
from
time
to
time
of
such
sums
of
money
as
the
Board
in
its
discretion
deems
it
advisable
to
advance,
having
regard
to
the
protection
of
the
interests
of
claimants
under
this
section
of
whose
claims
it
has
notice
in
writing
prior
to
such
advance.’’
And
then
subsection
(3)
:
“
(3)
The
money
remaining
in
the
trust
fund,
if
any,
after
payment
of
all
claims,
costs
and
expenses
authorized
to
be
paid
pursuant
to
this
Act
shall
belong
and
be
paid
to
the
company.
’
’
Then
by
Section
7
the
Order-in-Council
to
which
I
have
referred
was
validated
and
confirmed
and
attached
as
a
Schedule
to
the
Act.
The
Board
in
April,
1949,
proceeded
to
carry
out
the
powers
so
conferred
upon
it.
On
April
22
it
forwarded
to
the
National
Trust
Company
a
cheque
for
$317,213.24,
‘‘
being
payment
in
full
of
the
Rebus
Royalty
arrears
as
per
the
attached
statement’’.
The
Board
required
the
Trust
Company
to
hold
the
monies
undisbursed
until
all
those
individuals
entitled
to
the
royalties,
including
the
present
appellant,
had
completed
the
releases
enclosed.
The
appellant
and
all
the
other
royalty
holders
duly
completed
such
releases,
a
copy
thereof
forming
part
of
Exhibit
1.
The
appellant’s
share,
after
allowance
for
depletion,
amounted
to
$26,109.13,
and
as
I
have
said
above,
he
received
that
amount
in
1949.
I
turn
now
to
the
law
applicable
to
the
case.
Under
the
provisions
of
the
Income
Tax
Act,
11-12
Geo.
VI,
ce.
52,
Section
3
:
“3.
'Income’
includes
income
for
the
year
from
all
businesses,
property
and
offices
and
employment.”
Section
6(j)
thereof
is
as
follows:
"6.
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
(j)
amounts
received
by
the
taxpayer
in
the
year
that
were
dependent
upon
use
of
or
production
from
property
whether
or
not
they
were
instalments
of
the
sale
price
of
the
property,
but
instalments
of
the
sale
price
of
agricultural
land
shall
not
be
included
by
virtue
of
this
paragraph.”
One
of
the
alternative
grounds
of
appeal
was
that
the
sums
received
by
the
appellant
were
receipts
from
the
sale
of
an
interest
in
agricultural
land,
but
at
the
trial
that
ground
of
appeal
was
abandoned
and
obviously
could
not
be
supported.
Counsel
for
the
appellant
further
admitted
that
had
there
been
no
such
disaster,
and
consequently
no
interference
or
taking
over
by
the
Board,
the
whole
of
the
said
sum
of
$26,109.13
would
have
been
taxable
income
under
the
provisions
of
Section
6(j).
The
onus
is,
of
course,
upon
the
appellant
to
establish
the
existence
of
facts
or
law
showing
the
error
in
relation
to
the
taxation
imposed
upon
him
(Johnson
v.
Minister
of
National
Revenue,
[1948]
S.C.R.
486;
[1948]
C.T.C.
195).
The
first
submission
is
based
upon
the
provisions
of
Sections
2
and
3
of
the
Order-in-Council
which
I
have
set
out
above.
It
is
submitted
that
by
the
terms
of
Section
3
all
that
the
Board
was
entitled
to
pay
to
royalty
holders
was
such
royalty
as,
in
the
opinion
of
the
Board,
would
have
been
received
by
such
persons
if
Well
No.
3
had
not
blown
out
of
control
and
if
the
said
wells
1,
2
and
3
had
produced
at
a
rate
equivalent
to
the
actual
rate
of
production
allowed
by
the
Board
to
similar
wells
in
the
same
area.
It
is
argued
that
that
amount
only
(and
I
am
not
furnished
with
any
information
as
to
what
the
amount
was)
constitutes
taxable
income
and
that
the
remainder
is
not
income
but
capital.
It
is
said
that
by
the
Order-in-Council
the
nature
and
quality
of
the
appellant’s
right
to
a
royalty
has
been
altered,
that
only
a
portion
thereof
has
the
quality
of
taxable
income
and
that
the
balance
is
damages
or
a
return
of
capital
or
compensation
for
present
and
future
losses.
The
nature
of
this
submission
is
expressed
in
a
variety
of
ways
in
the
Notice
of
Appeal,
but
inasmuch
as
most
of
these
points
are
dealt
with
in
considering
the
next
submission
and
in
view
of
the
facts
as
I
consider
them
to
be,
I
need
not
further
mention
them
at
this
point.
I
may
add,
however,
that
in
my
opinion
no
provincial
enactment
could
convert
into
capital
that
income
which
the
Income
Tax
Act
has
declared
to
be
taxable
income.
Before
dealing
with
the
next
submission,
I
think
it
is
desirable
to
state
my
findings
as
to
what
the
Board
actually
did.
Section
3,
subsection
(l)(c)
of
the
Act
gave
the
Board
power
to
pay
such
sums
as
might
be
required
to
give
effect
to
any
settlement
approved
by
the
Board
and
arrived
at
between
the
company
and
any
claimant
against
the
company,
and
by
the
interpretation
section
thereof
a
claim
includes
a
claim
of
a
holder
of
a
gross
royalty
out
of
the
production
of
petroleum
from
Well
No.
3,
and,
therefore,
included
the
appellant.
If
no
such
settlement
was
reached,
the
Board
had
a
discretion
to
pay
the
claimants
such
amount
in
settlement
as
it
considered
just
and
equitable.
It
is
quite
apparent
that
a
settlement
was
arrived
at
between
the
company
and
the
appellant
and
approved
by
the
Board,
and
that
that
settlement
was
the
entire
claim
of
the
appellant
for
his
percentage
of
the
royalty
up
to
the
time
of
the
settlement.
The
settlement
with
the
claimant
was
made
under
the
terms
of
the
Act
and
not
restricted
to
the
provisions
of
Section
3
of
the
Order-in-Council.
The
next
submission
is
based
upon
the
provisions
of
The
Atlantic
Clams
Act.
Section
3,
as
I
have
indicated,
authorized
the
Board
to
dispose
of
the
trust
fund
in
the
manner
stated.
Then
Section
4
provides
for
restrictions
as
to
production
and
drilling
on
the
lands
in
question,
and
is
as
follows
:
‘‘4,
The
Atlantic
No.
3
Oil
Well
shall
be
deemed
to
have
over-produced
to
the
extent
of
five
hundred
and
sixty-five
thousand
one
hundred
and
ninety-five
barrels
of
oil
during
the
period
it
was
flowing
out
of
control
and
the
Board
may,
(a)
restrict
the
production
of
the
company’s
No.
1
and
No.
2
wells
to
an
amount
which
shall
not
exceed
two-thirds
of
the
normal
allowable
production
as
set
from
time
to
time
by
the
Board;
and
(b)
prevent
the
drilling
of
further
wells
on
legal
subdivisions
11
and
12
of
Section
28,
Township
50,
Range
26,
west
of
the
4th
Meridian;
until
such
time
as
the
Board
may
consider
it
necessary
in
order
to
compensate,
in
the
opinion
of
the
Board,
for
the
over-production
of
Atlantic
Number
3
Oil
Well.”
By
that
section
the
over-production
by
Well
No.
3
was
determined
and
the
Board
was
empowered
to
restrict
the
production
and
further
development
of
the
property
until
other
producers
in
the
area
had
been
compensated
for
the
over-production.
In
the
result,
Well
No.
3
was
capped
and
has
not
been
allowed
to
recommence
production.
Wells
1
and
2
have
subsequently
recommenced
production,
which
has
been
and
still
is
limited
to
two-thirds
of
normal
allowable
production.
No
other
wells
have
been
drilled
or
allowed
to
be
drilled
on
the
lands
in
question,
although
I
understand
that
in
the
normal
course
of
events
a
fourth
well
would
have
been
drilled.
In
a
letter
of
the
Board
to
the
appellant’s
solicitors
dated
February
18,
1950,
it
was
stated
that
no
change
was
contemplated
in
the
near
future.
In
his
Notice
of
Appeal
the
appellant
alleged
that
the
total
sums
received
in
1949
were
capital
‘‘as
being
damages
for
loss
of
future
development
of
property
to
its
full
scope”,
or
“capital
as
compensation
upon
giving
up
right
to
drill
on
the
remaining
two
well
sites’’,
and
as
capital
‘‘
because
of
the
act
of
the
Alberta
Government
in
interfering
and
in
effect
expropriating
w
hat
might
have
been
income
under
other
circumstances
and
converting
it
into
a
capital
payment
or
compensation
for
present
and
future
losses’’.
In
my
view,
none
of
these
contentions
is
tenable
and
I
must
reject
them.
No
property
or
rights
of
the
appellant
were
expropriated
and
he
received
full
compensation
for
all
royalties
he
was
entitled
to.
It
is
possible
that
by
reason
of
the
restrictions
on
production
imposed
by
the
Board,
his
annual
income
may
be
less
than
if
full
production
and
development
had
been
allowed.
But
such
restrictions
were
imposed
by
competent
statutory
authority
and
no
possible
right
to
damages
would
accrue
to
the
appellant
against
the
Board
or
the
company
by
reason
thereof.
The
appellant
surrendered
no
rights
in
respect
to
these
matters
and
no
part
of
the
monies
which
he
received
in
1949
were
paid
to
him
because
of
such
restrictions.
The
settlement
of
his
claim
had
nothing
whatever
to
do
with
the
restrictions
imposed
by
the
Board
and
he
was
not
asked
to
approve
or
disapprove
of
them.
Moreover,
the
fixation
in
the
Act
of
the
amount
of
the
overproduction
could
not
affect
the
character
of
the
payments
which
he
received.
It
was
done
merely
for
the
purpose
of
fixing
with
precision
the
amount
of
the
over-production
as
a
guide
for
the
Board
in
determining
when
and
to
what
extent
the
restrictions
should
later
be
altered.
Another
submission
is
that,
while
the
receipt
signed
by
the
appellant
is
for
the
precise
amount
of
royalty
to
which
he
is
entitled,
it
is
also
a
release
of
all
claims
and
demands.
It
is
contended
that
the
total
receipts
are
capital
‘‘as
being
damages
or
solatium
for
not
receiving
the
contractual
payments,
or
as
payment
for
a
general
release
of
existing
and
future
claims,
or
as
payments
not
depending
on
production
from
property,
or
as
payments
made
by
statutory
authority
and
by
the
Board
which
was
not
a
contracting
party’’.
Now,
there
is
no
evidence
whatever
that
the
appellant
had
any
valid
claim
against
the
company
except
for
his
share
of
the
royalty
reserved;
nor
is
there
any
evidence
that
he
ever
asserted
any
other
claim.
On
July
8,
1948,
the
National
Trust
Company
as
trustees
for
the
Rebus
family,
wrote
the
Board
as
to
the
gross
royalties
that
family
was
entitled
to
from
the
company.
On
April
22,
1949,
the
Board
forwarded
its
cheque
to
the
Trust
Company
for
$317,213.34,
‘‘being
payment
in
full
of
the
Rebus
royalty
arrears
as
per
the
attached
statement’’.
That
statement
is
entitled
‘‘Gross
Royalties
Statement
re
Rebus
et
al.’’,
and
the
computation
therein
relates
to
royalties
only.
The
document
which
the
appellant
signed
on
April
26,
1949,
upon
receiving
his
share
of
that
cheque
is
called
a
‘‘release’’.
It
recites
that
he
is
entitled
to
a
share
of
the
royalty
payable
by
the
Atlantic
Oil
Company
and
acknowledges
receipt
of
such
share
in
the
following
words:
“That
I
have
received
full
payment
and
satisfaction
of
all
of
my
share
of
all
arrears
of
royalty
payable
by
said
Atlantic
Oil
Company
Limited
in
respect
of
the
production
of
leased
substances
from
the
said
lands
up
to
and
including
the
31st
day
of
March,
1949,
by
virtue
of
payment
by
the
Petroleum
and
Natural
Gas
Conservation
Board
of
the
Province
of
Alberta
on
behalf
of
said
Atlantic
Oil
Company
Limited
to
National
Trust
Company
Limited
at
its
office
in
the
City
of
Edmonton
in
the
Province
of
Alberta
of
the
sum
of
$317,213.34
for
the
account
of
myself
and
other
persons
entitled
to
share
in
the
said
royalty
under
the
terms
of
a
certain
agreement
dated
the
16th
day
of
August,
1947,
made
between
Norman
George
Lacy,
Michael
Rebus
and
others
therein
named.”
Then
follows
the
release
clause
in
these
words
:
“And
I
do
hereby
release
and
forever
discharge
the
said
Atlantic
Oil
Company
Limited
and
said
Petroleum
and
Natural
Gas
Conservation
Board
and
their
and
each
of
their
successive
successors
and
assigns
from
all
manner
of
actions,
causes
of
actions,
claims
or
demands
which
I
or
my
executors,
administrator
or
assigns
or
any
of
them
have
had,
now
have
or
can
or
shall
or
may
hereafter
have
against
Atlantic
Oil
Company
Limited
and/or
said
Petroleum
and
Natural
Gas
Conservation
Board
for
or
in
respect
of
any
share
of
production
of
leased
substances
from
the
said
lands
or
proceeds
thereof
payable
to
me
or
to
the
said
National
Trust
Company
Limited
for
my
account
up
to
and
including
the
said
31st
day
of
March,
1949.”
It
is
most
apparent
that
the
payment
related
solely
to
the
appellant’s
claim
for
royalty.
Even
if
the
terms
of
the
general
release
were
wide
enough
to
constitute
a
release
of
other
claims
(and
I
do
not
think
they
are),
that
is
nihil
ad
rem.
The
actual
payment
was
and
was
clearly
stated
to
be
on
account
of
royalty
only.
Again
it
is
submitted
that
the
payment
was
a
capital
payment
inasmuch
as
it
was
paid
by
the
Board,
a
non-contracting
party,
and
not
by
the
company.
I
do
not
think
that
is
of
any
importance
whatever.
The
release
itself
states
that
the
monies
were
received
by
the
appellant
from
the
Board
on
behalf
of
the
Atlantic
Où
Company
Limited.
Section
6(j)
(supra)
does
not
require
that
the
amount
received
shall
have
been
paid
by
a
contracting
party.
All
that
is
required
is
that
it
shall
be
an
amount
received
by
the
taxpayer
in
the
year
that
was
dependent
upon
use
of
or
production
from
property.
In
my
view,
the
Board
was
a
statutory
custodian
or
trustee
of
the
property
of
the
company
following
the
taking
of
possession
and
of
the
trust
funds
representing
the
proceeds
of
the
sale
of
the
salvaged
oil,
for
and
on
behalf
of
those
who
might
establish
a
valid
claim
against
the
company,
the
balance
to
belong
to
the
company
itself.
As
I
have
said,
there
can
be
no
doubt—in
fact,
it
is
admitted—that
had
there
been
no
disaster
and
had
the
payments
been
made
in
the
ordinary
course
by
the
company,
the
whole
of
the
amount
in
dispute
constituted
taxable
income
as
falling
within
the
provisions
of
Section
6(j).
I
am
quite
unable
to
find
that
the
temporary
custodianship
of
the
Board
or
any
provisions
in
the
Order-in-Council
or
The
Atlantic
Claims
Act
or
in
the
release
executed
by
the
appellant
in
any
way
affected
the
true
nature
and
quality
of
the
amount
he
was
entitled
to
and
did
receive.
It
was
clearly
an
amount
received
by
the
appellant
that
was
dependent
upon
the
use
of
or
production
from
property
and
was,
therefore,
properly
included
by
the
respondent
as
part
of
the
appellant’s
taxable
income.
The
appeal
must
fail
on
all
grounds
and
will
be
dismissed
with
costs,
and
the
assessment
made
upon
the
appellant
is
affirmed.
Judgment
accordingly.
Email this Content