SMITH,
J.:—On
April
27,
1929,
the
appellant
made
a
return
of
his
income
for
the
year
ending
December
31,
1928,
which
return
contained
the
following
entry
under
Clause
6:
‘‘Income
from
Dividends
***
Received
from
Waterous
Limited,
Brantford,
Ontario,
Dominion
of
Canada
Victory
Loan
Bonds,
maturing
November
1st,
1933,
as
dividend
declared
payable
in
bonds;
these
bonds
being
tax
free
as
to
principal
and
interest.
Face
value,
$30,500.”
The
appellant
was
a
shareholder
in
the
company
mentioned.
•At
a
meeting
of
the
directors
of
Waterous
Ltd.,
held
on
June
28,
1928,
the
following
resolution
was
passed
:
"‘It
was
moved
by
C.
A.
Waterous
and
seconded
by
L.
M.
Waterous
that
a
dividend
of
thirty
per
cent
be
declared,
payable
in
Dominion
of
Canada
War
Loan
Bonds
now
held
by
the
Company
at
the
par
value
thereof
and
that
bonds
be
distributed
to
the
shareholders
in
accordance
herewith.
Carried.”
In
pursuance
of
this
resolution,
the
appellant
received
from
the
company
the
bonds
in
question,
as
shown
in
the
receipt
quoted
above.
The
appellant
was
assessed
under
the
Income
War
Tax
Act,
R.S.C.
1927,
c.
97,
upon
this
sum
as
part
of
his
income,
and
took
an
appeal
to
the
Minister
of
National
Revenue,
which
was
dismissed.
He
then
appealed
to
the
Exchequer
Court
of
Canada,
from
the
decision
of
the
Minister,
and
this
appeal
was
dismissed
by
Mr.
Justice
Audette
on
the
4th
April,
1931
(ante,
p
);
and
from
that
judgment
the
present
appeal
is
taken.
Sec.
4
of
the
Act
reads
as
follows:
"‘4.
The
following
incomes
shall
not
be
liable
to
taxation
hereunder
:
(j)
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;”
The
appellant
contends
that
he
was
not
liable
to
taxation
for
income
on
the
amount
of
these
bonds,
and
relies
upon
the
following
provision,
set
out
in
the
bond
itself,
as
follows:
"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
income
tax—imposed
in
pursuance
of
any
legislation
enacted
by
the
Parliament
of
Canada.’
It
is
argued
on
behalf
of
the
appellant
that
the
taxation
levied
on
the
amount
of
this
bond
is
taxation
on
‘‘the
obligation
represented
by
the
bond’’,
which
obligation
is
non-taxable
under
the
provisions
of
the
bond
itself,
issued
in
pursuance
of
statutory
authority.
The
respondent
contends
that
the
amount
of
the
bond
in
question
is
income
of
the
appellant,
as
defined
by
sec.
3
of
the
Income
War
Tax
Act,
R.S.C.
1927,
c.
97,
and
that
the
taxation
is
not
upon
the
bond
itself,
or
upon
the
obligation
represented
by
the
bond,
but
upon
the
appellant
personally,
on
his
income,
part
of
which
is
merely
represented
by
the
amount
of
the
bond.
I
am
entirely
in
agreement
with
the
reasons
of
Mr.
Justice
Audette
in
the
court
below,
containing
the
following
statement
:
"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.’’
I
think
it
is
clear
that
this
is
not
a
taxation
on
the
obligation
represented
by
the
bond
or
upon
payments
in
discharge
thereof,
but
merely
taxation
upon
the
appellant’s
income,
which
is
in
part
measured
by
the
amount
of
the
bond
which
he
received
as
dividend,
and
which
constitutes
income.
In
the
case
of
McLeod
v.
Minister
of
Customs
and
Excise
[1926]
S.C.R.
457,
at
464,
Mr.
Justice
Mignault
has
the
following
remark
:
’All
this
is
in
accord
with
the
general
policy
of
the
Act
which
imposes
the
income
tax
on
the
person
and
not
on
the
property.
In
other
words,
it
is
the
person
who
is
assessed
in
respect
of
his
income.’’
We
are
also
referred
to
the
case
of
Hitner
v.
Lederer
(1926)
14
Federal
Reporter,
2nd
Series,
991.
This
case,
though
not
binding
here,
seems
to
be
precisely
in
point,
and
the
reasoning
is
in
accord
with
what
has
been
said
above.
The
United
States
issued
Liberty
Bonds.
One
of
the
provisions
of
the
Act
authorizing
these
bonds
was
that
the
bonds
were
exempt,
both
as
to
principal
and
interest,
from
all
taxes.
An
employee
received
one
of
these
bonds
in
payment
of
salary,
and
the
question
there,
as
here,
was
whether
or
not
the
amount
of
the
bond
should
be
regarded
as
income,
for
the
purposes
of
taxation;
and
it
was
held
that
it
was
income,
subject
to
income
tax.
It
is
pointed
out
in
the
reasons
that
it
was
not
a
tax
because
of
the
ownership
of
the
bonds,
which
would
have
been
a
tax
upon
the
principal
;
it
was
solely
and
exclusively
income
in
payment
of
salary
for
compensation
of
services,
and
had
nothing
whatever
in
this
sense
to
do
with
Liberty
Bonds.
Again,
it
is
said
at
p.
993
:
"’The
bonds
are
by
the
express
provision
of
the
Act
of
1917
not
a
medium
of
exchange
recognized
by
law.
This
means
that
what
was
taxed
was
not
‘bonds’,
but
‘income’.”
The
appeal
should
be
dismissed,
with
costs.
Lamont,
J.
dissented,
but
did
not
deliver
written
reasons.
Appeal
dismissed.
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