AUDETTE,
J.:—This
is
an
appeal,
under
the
provisions
of
The
Income
War
Tax
Act,
1917,
R.S.C.
1927,
c.
97,
from
the
assessment
of
the
appellant,
for
the
year
1928,
on
that
part
of
his
income
which
he
received
from
the
Waterous
Ltd.,
a
company
incorporated
under
the
Dominion
Companies
Act,
in
the
nature
of
a
dividend
of
$30,500,
the
proceeds
of
gains
and
profits
made
by
the
company,
distributed
among
its
shareholders
and
paid
to
them
otherwise
than
in
specie—that
is,
with
their
consent
and
agreement—in
Canada
Victory
Loan
Bonds
at
par.
The
appellant
contends
that
as
this.
dividend
so
distributed
was
paid
in
a
War
Loan
Victory
Bond,
hereinafter
recited,
he
is
exempt
from
paying
any
income
tax
upon
such
dividend.
To
facilitate
a
proper
understanding
of
this
question,
it
is
thought
advisable
to
recite
the
actual
language
of
the
Bond,
which
reads
as
follows:
‘
1
Series—T
‘*No.
H071813
"CANADA’S
VICTORY
LOAN,
1918
$
$
“Dominion
of
Canada
"‘War
Loan.
“15
years
512
Gold
Bond.
Principal
due
1st
November,
1933.
“The
Dominion
of
Canada,
for
value
received,
will
pay
to
the
bearer
or,
if
registered,
to
the
registered
holder
‘hereof,
the
sum
of
Dollars
on
the
first
day
of
November,
1933;
and.
will
pay
interest
thereon.
at
the
rate
of
five
and
one-half
per
cent.
per
annum
from
the
1st
day
of
November,
1918,
semi-annually,
on
the
first
day
of
May
and
the
first
day
of
Nov
ember,
upon
presentation
and
surrender,
as
they
severally
mature,
of
the
coupons
for
such
interest
hereto
annexed.
Such
principal
sum
is
payable
at
the
office
of
the.
Minister
of
Finance
and
Receiver-
General
at
Ottawa,
or
at
the
office
of
the
Assistant
Receiver-
General
at
Halifax,
St.
John,
Charlottetown,
Montreal,
Toronto,
Winnipeg,
Regina,
Calgary,
Victoria.
Coupons
are
payable
free
of
exchange,
at
any
branch
in
Canada
of
any
chartered
bank.
Principal
and
interest
are
payable
in
gold
coin
that
is
legal
tender
in
Canada.
This
bond
is
one
of
an
issue
of
the
Dominion
of
Canada,
issued
and
to
be
issued
of
date
1st
November,
1918;
and
payable
1st
November,
1933.
The
obligation
represented
by
this
bond
and
the
annexed
interest
coupons
and
all
payments
in
discharge
thereof
are
and
shall
be
exempt
from
taxes—ineluding
any
income
tax—
imposed
in
pursuance
of
any
legislation
enacted
by
the
Parliament
of
Canada.
This
bond
is
issued
under
the
authority
of.
Statutes
of
Canada,
‘‘The
War
Appropriation
Act,
1915,”
“The
War
Appropriation
Act,
1916,’‘
‘‘The
War
Appropriation
Act,
1917/‘
“The
War
Appropriation
Act,
1918.”
This
bond
shall
pass
by
delivery,
unless
it
is
registered
in
the
owner’s
name
in
the
books
of
the
Department
of
Finance
and
such
registration
is
noted
hereon
by
or
on
behalf
of
the
Deputy
Minister
of
Finance,
Registrar
of
the
bond
of
this
issue.
Transfer
of
registered
bonds
and
discharge
from
the
registry
may
be
made,
subject
to
the
conditions
endorsed
hereon.
This
bond
shall
not
be
valid
or
obligatory
for
any
purpose
until
countersigned
on
behalf
of
the
Department
of
Finance.
“In
Witness
whereot
.
.
.
.
39
From
the
reading
of
this
bond,
it
appears
clearly
that
the
obligation
resulting
therefrom
is
first
the
payment
of
the
capital
thereof
on
maturity
in
1933
and
secondly
to
pay
interest,
upon
presentation
and
surrender
of
coupons
for
the
same.
Now
what
is
it
in
this
bond
which
is
exempt
from
income
tax?
The
bond
says:
"The
obligation
represented
by
this
bond
and
the
annexed
interest
coupons
and
all
payments
in
discharge
thereof
are
and
shall
be
exempt
from
taxes—including
any
income
tax
.
.
.””
The
payment
of
the
distributed
dividend
in
question
in
this
case
in
bonds,
does
not
bring
the
transaction
within
the
obligation
of
the
bond
above
recited
which
introduces
the
exemption
in
taxes.
It
is
not
the
payment
of
the
bond
at
maturity,
and
it
is
not
the
payment
of
interest
upon
presentation
and
surrender
of
coupons.
The
bond
passes
by
delivery,
as
appears
by
the
recital
in
the
bond
itself.
Clearly
the
transactions
in
this
case
do
not
bring
the
bond
to
the
stage
when,
in
the
discharge
of
its
obligation,
exemption
ean
be
claimed.
The
whole
fallacy
of
the
appellant’s
contention
lies
in
the
fact
that
while
this
bond
is
a
bond
free
from
taxation,
he
has
not
shown
circumstances
upon
which
this
exemption
would
obtain
in
his
behalf
at
the
present
time.
The
dividend
paid
and
distributed
from
the
gains
and
profits
of
the
company
remains
a
gain
and
profit
in
the
hands
of
the
shareholder,
whether
that
dividend
is
paid
in
kind,
specie
or
in
bond;
because
it
is-
all
through
a
dividend
from,
and
of,
profit
and
gain;
it
remains
of
such
nature
in
the
hands
of
both
the
company
and
the
shareholder.
What
you
cannot
do
directly,
you
cannot
do
indirectly.
The
case
of
exemption
from
taxation
provided
as
resulting
from
the
obligation
of
the
bond
does
not
in
any
manner
or
form
arise
under
the
present
circumstances.
The
dividend,
the
proceeds
of
gain
and
profit,
has
been
invested
in
bonds.
and
whoever
may
be
the
owner
thereof
will
benefit
by
the
exemption
from
paying
income
tax
upon
the
interest
paid
upon
the
surrender
of
the
coupon
or
on
the
capital
at
maturity.
The
bond
in
the
hands
of
the
shareholder
does
not
come
into
his
hands
under
any
of
the
circumstances
flowing
from
the
obligation
of
the
bond
and
therefore
he
cannot
claim
exemption.
The
appellant
stands
in
the
same
position
as
any
other
shareholder,
in
any
company,
receiving
a
dividend
which
constitutes
part
of
his
income,
and
which
he
may,
after
receiving,
invest
in
such
bonds.
There
is
no
reason
to
discriminate
against
the
latter
who
buys
bonds
himself
from
the
proceeds
of
the
dividend
and
the
one
who
gives
his
consent
to
accept
in
dividend
a
bond
which
this
company
bought
with
profit
and
gain
coming
to
him.
The
payment
of
the
dividend
in
bonds
did
not
alter
the
nature
of
the
dividend
which
always
remains
a
distribution
of
profits
and
gains
of
the
company
among
the
shareholders
who
receive
it
as
an
income
subject
to
taxation,
as
the
obligation
of
the
bond
to
exempt
from
taxation
does
not
evidently
apply
to
such
circumstances.
The
appellant,
however,
having
agreed
to
allow
the
company
to
pay
the
dividend
in
bonds—to
invest
for
him
such
dividend—he
will
hereafter
be
exempt
from
taxation
on
what
he
will
derive
from
the
bond
itself.
The
exemption
mentioned
in
the
bond
only
attaches
upon
the
revenues
derived
therefrom
and
not
upon
gains
and
profits
of
monies
used
in
purchasing
the
same.
When
the
company
declared
the
dividend
in
question
on
its
shares,
a
debt
immediately
became
payable
to
each
shareholder
in
respect
of
his
dividend
for
which
he
could
sue
at
law;
but
that
does
not
make
the
company
a
trustee
or
agent
in
respect
of
the
shareholder’s
dividend
and
that
fact
of
converting
the
dividend
into
bonds
does
not
change
the
nature
of
the
dividend.
The
bond
was
only
a
means
of
liquidating
to
shareholders
the
liability
of
the
company
to
pay
the
declared
dividend.
In
re
Severn
and
Wye
and
Severn
Bridge
Ry.
[1896]
1
Ch.
559.
When
the
bond
comes
into
the
hands
of
the
shareholder
it
must
be
treated
in
the
same
manner
as
if
it
were
coming
into
the
hands
of
the
company,
which
acquires
it
out
of
profits
and
gains
upon
which
they
had
to
pay
taxes.
It
comes
into
the
hands
of
the
shareholder
as
gain
and
profit
and
forms
part
of
his
income
without
exemption
of
taxation
as
provided
in
the
bond.
It
is
not
the
money
that
purchases
the
bond
that
is
exempt
from
taxation,
but
only
what
is
derived
from
the
bond.
The
company
at
the
time
could
not
pay
the
dividend
in
bond
except
by
the
consent
of
the
shareholders
(Palmer,
Company
Law,
13th
Ed.,
231);
but
see
now
the
Act
of
1930,
20-21
Geo.
V,
ec.
9,
sec.
14.
A
very
apposite
decision
in
the
United
States
is
to
be
found
in
the
case
of
Hitner
v.
Lederer
(1926)
14
Fed.
Rep.
2nd
Ser.
991,
where
it
was
held
that
for
income
tax
purposes,
value
of
first
Liberty
Bonds,
received
in
payment
of
salary,
is
to
be
considered,
notwithstanding
the
Act
of
April
24,
1917,
declaring
them
exempt,
both
as
to
principal
and
interest,
from
all
taxes
.
.
.
;
Salary
in
legal
effect
being
paid
in
money.
There
is
also
the
opinion
of
the
Attorney-General
reported
in
Alverson,
American
Income
Tax
cases,
88,
where
it
is
said:
"‘Corporate
stockholders
receiving
dividends
paid
with
non-
taxable
liberty
bonds
must
include
in
the
computation
of
net
income
subject
to
income
tax
the
value
of
such
bonds
received
as
dividend
payments,
because
the
tax
is
not
upon
any
part
of
the
bond
but
upon
it
as
a
whole
and
cannot
be
evaded
because
the
income
or
gain
happens
to
be
liquidated
by
the
delivery
of
a
certain
number
of
.
.
.
non-taxable
securities.”
Subsec.
(j)
of
sec.
4
of
the
Income
War
Tax
Act,
R.S.C.
1927,
e.
97,
provides,
in
dealing
with
exemptions
and
deductions,
that
‘‘the
income
derived
from
any
bonds
or
other
securities
of
the
Dominion
of
Canada
issued
exempt
from
any
income
tax
imposed
in
pursuance
of
any
legislation
enacted
by
the
Parliament
of
Canada”
shall
not
be
liable
to
income
tax.
But
here
again
the
provision
is
in
confirmation
of
the
obligation
recited
in
the
bond
and
that
is
that
the
exemption
is
upon
the
income
derived
from
the
bond
and
not
upon
the
monies
used
in
purchasing
it.
There
were
other
questions
raised
at
trial
but
in
the
view
I
have
taken
of
the
case
it
becomes
unnecessary
to
pass
upon
the
same.
Looking
at
all
the
circumstances
of
the
case,
it
must
be
found
that
the
real
nature
of
the
transaction
in
question
was
that
the
company
intended
to
distribute
and
pay
and
did
distribute
and
pay
to
the
shareholders
a
dividend
out
of
gain
and
profit
realized
in
its
business;
but
when
it
came
to
pay
it,
it
offered
to
the
shareholders
to
liquidate
such
liability
with
war
bonds
instead
of
money
or
cheque
and
the
shareholders
accepted.
The
income
tax
sought
is
not
upon
any
part
of
the
bond,
but
it
is
upon
the
profits
and
gains
of
the
company
used
in
purchasing
the
bond
which
was
handed
over
to
the
shareholder
to
liquidate
its
liability
in
respect
of
the
dividend.
The
dividend
was
gain
and
profit
in
the
hands
of
the
company
and
in
the
hands
of
the
shareholder
and
the
question
of
exemption
under
the
provisions
of
the
bond
and
of
the
Act
does
not
arise;
because
the
payment
in
no
manner
can
be
said
to
be
paid
under
such
provisions.
There
will
be
judgment
dismissing
the
appeal
with
costs.
Judgment
accordingly.
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