In Re Thomas Jackson & Sons Ltd., [1935-37] CTC 162

Dysart, J.—This is an appeal by Thos. Jackson & Sons, Ltd., from a decision of the Municipal Commissioner of Manitoba, on a

question of income tax, and involves the interpretation of certain provisions of the Manitoba Income Tax Act, C.A. 1924, c. 91, as amended. The following statement of facts has been agreed upon :

"1. The Administrator of Income Tax of the Province of Manitoba by notice of assessment mailed on the 7th day of March, 1935, assessed Thos. Jackson & Sons Ltd., hereinafter called the appellants, as liable to pay income tax under The Income Tax Act of the said province in the sum of $3,869.85 for the year 1934 in respect of income claimed to be taxable by the said administrator in the sum of $73,016.08 received by the appellants during the said year.

"‘2. The appellants duly objected to the said assessment pur- - suant to the said Act. By arrangement between the appellants and the said administrator the matter was duly considered by the Municipal Commissioner of the province of Manitoba and the said Municipal Commissioner affirmed the assessment objected to by the appellants and duly notified the appellants of his decision pursuant to the said Act, and from that decision the appellants have duly appealed to a Judge of the Court of King’s Bench for Manitoba.

"13. The said sum of $73,016.08 was received by the appellants during 1934 as and by way of dividends from Nelson River Construction Ltd.

"4. The said sum of $73,016.08 was part of the profits of Nelson River Construction Ltd. and the said sum and the said profits were accumulated by Nelson River Construction Ltd. prior to, and were undistributed as at, the 31st day of December, 1929.

"5. The appellants and Nelson River Construction Ltd. are Joint stock companies and neither of them is a personal corporation within The Income Tax Act of the Province of Manitoba.

" " It is hereby agreed on behalf of the above named appellants and His Majesty the King in the right of the Province of Manitoba to make the above statements of facts as and in lieu of evidence upon the hearing of this appeal and that the same may be used and read as evidence upon the hearing of this appeal and for all the purposes thereof.’’

The provisions of the Act requiring interpretation are two:

“8.(4) Save as herein otherwise provided, every corporation and joint stock company, other than a personal corporation, no matter how created or organized, carrying on business within the Province shall pay a tax of five per centum upon the amount of its income within the Provinee during the preceding year. I Added by 1930, ch. 22, see. 7, and amended by 1932, ch. 49, sec. 10.]

“4. (p) profits of a corporation or joint stock company other than a personal corporation accumulated prior to and undistributed at the 31st day of December, 1929, shall not be liable to taxation under subsection (4) of seetion 8 of ‘The Income Tax Act.’ [Added by 1930, ch. 22, sec. 2.]’

The “profits” which had been “accumulated” by the Nelson River Co. prior to the end of 1929, and which had remained “undistributed” at that date, continued to be ‘‘undistributed profits’’ in the hands of the company, belonging to the company, after that date until 1934, and consequently were entitled to the exemption from taxation provided by implication in sec. 4(p). Recognizing this exception, the administrator of income tax of the province made no attempt to assess or levy the tax upon these profits while they remained with the Nelson River Co. undis- tributed. When, however, these ‘‘profits’’ passed by distribution into the hands of the company’s shareholders, they lost their twofold character of (1) ‘‘undistributed profits’’, and (2) of " i profits of’’, that is of profits belonging to the Nelson River Co. The profits were no longer undistributed and they no longer belonged to that company. By the distribution the profits passed to the shareholders, not as profits which the shareholders themselves had accumulated and retained undistributed, but merely as dividends upon shares of stock which they held in the company. Dividends on shares of stock constitute income, as defined by sec. 3, and so are liable to the taxation imposed by sec. 8(4), and not saved or exempted by sec. 4(p).

On behalf of Thomas Jackson & Sons, Ltd., Mr. Johnston argues that the exemption allowed by sec. 4(p) attaches to the actual ‘‘profits’’ themselves; that is, presumably, to the money or specie or form in which the profits were held. If this were so, the profits would never be liable to the tax, and would escape taxation as long as they could be satisfactorily traced from hand to hand—a conelusion that seems rather striking. But the argument has no sufficient. foundation in the Act, which imposes the tax not upon income but upon persons and corporations in respect of their income. Sec. 8(4) declares "‘every corporation . . . shall pay a tax . . . upon the amount of its income . . . .” It is the amount of the income, and not the specie or medium in which the income is paid, that forms the basis for taxation. Whether the income be paid by the company and received by shareholders in cash or in tax-free profits or in tax-free bonds or otherwise howsoever is immaterial. The case of Waterous v. Minister of National Revenue [1933] S.C.R. 408, is in point. There the company declared a dividend payable in Dominion of Canada war bonds which it had accumulated, and the dividend was paid accordingly. The bonds each provided that :

"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— imposed in pursuance of any legislation enacted by the Parliament of Canada. ‘ ‘

A shareholder of the company who had received his dividend in the said bonds at their face value was assessed upon the amount of the bonds as income under the Income War Tax Act, R.S.C. 1927, c. 97. It was unanimously held by the Supreme Court of Canada that the assessment was valid and the tax must be paid, because the taxation was not upon “‘the obligation represented by the bond’’, but upon the appellant’s income, and that the income was in part measured by the amount of the bonds he had so received as dividend.

The rule requiring strict construction of taxing Acts is not overlooked: Rex v. Crabbs [1934] S.C.R. 523. It seems clear, however, that in the light of the Waterous case, supra, the authority to levy the tax in the case now under consideration is set forth in the quoted provisions of the Manitoba Income Tax Act with sufficient clearness and explicitness to satisfy the rule.

The appeal is, therefore, dismissed, but in the circumstances, the dismissal shall be without costs.

Judgment accordingly.