MACLEAN,
J.:—In
this
Information,
the
plaintiff
seeks
to
recover
from
the
defendant,
under
the
provisions
of
s.
9B,
ss.
2
of
the
Income
War
Tax
Act,
a
certain
sum
of
money
claimed
to
be
due
and
payable,
and
being
a
tax
upon
a
stock
dividend
paid
by
the
defendant
to
certain
of
its
shareholders
who
were
non-residents
of
Canada.
See.
9B,
ss.
2
(a)
of
the
Act
is
as
follows:
In
addition
to
any
other
tax
imposed
by
this
Act
an
income
tax
of
five
per
centum
is
hereby
imposed
on
all
persons
who
are
non-residents
of
Canada
in
respect
of
(a)
All
dividends
received
from
Canadian
debtors
irrespective
of
the
currency
in
which
the
payment
is
made
*
*
*
Subsec.
4
of
s.
9B
provides
that
:
In
the
case
of
interest
or
dividends
in
respect
of
fully
registered
shares,
bonds,
debentures,
mortgages
or
any
other
obligations,
the
taxes
imposed
by
this
section
shall
be
collected
by
the
debtor
who
shall
withhold
five
per
centum
of
the
interest
or
dividend
on
the
obligation
and
remit
the
same
to
the
Receiver-General
of
Canada.
By
s.
2
(b)
of
the
Act
‘
dividends
‘
‘
include
‘‘stock
dividends.
’’
The
defendant
is
a
company
incorporated
under
the
laws
of
the
Dominion
of.
Canada
and
having
its
head
office
in
the
City
of
Toronto,
Ontario.
Its
authorized
capital
was
$250,000
divided
into
25,000
shares
of
the
par
value
of
$10
each.
On
December
31,
1935,
the
defendant
company
had
outstanding
and
fully
paid
up
10,750
shares
of
its
capital
stock
of
which
10,650
shares
were
owned
by
non-residents
of
Canada.
On
December
11,
1933,
a
by-law,
numbered
6,
was
enacted
by
the
directors
of
the
defendant
company
in
the
following
terms
:
“For
the
amount
of
any
dividend
which
the
Directors
may
lawfully
declare
payable
in
money
they
may
issue
shares
of
this
Company
as
fully
paid.”
That
by-law
was
subsequently
sanctioned
by
the
shareholders
at
a
special
general
meeting
called
for
that
purpose.
On
December
11,
1935,
the
directors
of
the
defendant
company
duly
passed
the
following
resolution
:—
Resolved
that
whereas
By-law
No.
6
of
this
Company
authorizes
the
directors
to
issue
fully
paid
shares
for
the
amount
of
any
dividend
they
may
lawfully
declare
payable
in
money,
a
dividend
be
and
it
is
hereby
declared
on
the
issued
share
capital
of
this
Company
in
the
form
of
an
issue
of
whole
shares
of
this
Company’s
capital
stock
of
such
aggregate
par
value
as
shall
be,
as
nearly
as
may
be,
equal
in
total
amount
to
the
surplus
of
this
Company
on
31st
December,
1935,
less
the
amount
of
a
fair
reserve
for
any
taxes,
the
amount
of
which
may
be
based
upon
the
operations
of
this
Company
up
to
31st
December,
1935,
as
the
same
may
be
determined
by
this
Company’s
auditors,
and
that
the
same
are
hereby
allotted
and
directed
to
be
delivered
on
2nd
January,
1936,
pro
rata
to
the
shareholders
of
this
Company
of
record
at
the
close
of
business
on
Slst
December,
1935,
or
as
they
may
respectively
direct.
The
amount
of
the
surplus
of
the
defendant
company
on
December
31st,
1935,
as
determined
by
its
auditors,
after
deducting
the
amount
of
a
fair
reserve
for
any
taxes,
was
$49,571.51.
By
virtue
of
the
resolution
just
mentioned
the
defendant
company
duly
allotted,
as
fully
paid,
4,957
authorized
and
unissued
shares
of
its
capital
stock
of
the
par
value
of
$10
each
to
its
shareholders
of
record
at
the
close
of
business
on
December
31,
1935,
pro
rata
according
to
their
holdings
of
issued
shares
of
the
defendant
company
as
of
that
date.
Pursuant
to
the
authority
contained
in
By-law
numbered
6,
the
said
4,957
shares
were
paid
up
in
full
by
the
transfer
from
the
"‘earned
surplus’
‘
account
of
the
company
of
the
sum
of
$49,570
to
the
credit
of
the
share
capital
account.
The
whole
of
the
earned
surplus
so
capitalized
by
the
defendant
company
was
available
prior
to
its
capitalization
for
the
payment
of
cash
dividends
to
the
shareholders
of
the
defendant
company.
Johnson
Matthey
&
Company
Limited,
an
English
company
and
a
non-resident
of
Canada,
was
entered.
in
the
stock
register
of
the
defendant
company
as
the
owner
of
4,907
of
the
said
4,957
shares,
all
of
which
have
been
credited
as
fully
paid,
and
it
has
received
share
certificates
representing
them.
The
defendant
company
did
not
collect
or
withhold,
or
pay,
the
tax
in
respect
of
the
said
4,907
shares
of
its
capital
stock
allotted
to
Johnson
Matthey
&
Company
Limited.
The
submission
of
Mr.
Osler
on
behalf
of
the
defendant
was
to
the
effect
that
what
took
place
was
simply
a
capitalization
of
surplus
and
a
distribution
of
shares,
and
that
there
was
no
payment
of
a
dividend
because
nothing
was
divided
and
nothing
changed;
that
no
"‘Canadian
debtor,’’
no
"payment,''
and
no
”
currency,
”
was
involved
in
the
transactions
that
took
place,
and
that
s.
9B
2
(a)
contemplates
only
the
case
where
a
dividend
is
being
paid
in
Canadian
funds
and
that
therefore
a
stock
dividend
is
not
taxable
under
that
section
of
the
Act.
I
have
carefully
considered
the
argument
of
Mr.
Osler,
but
I
do
not
think
it
can
prevail.
We
are
dealing
with
a
particular
statute
which
plainly
declares
that
"‘dividends”
include
“stock
dividends.’’
The
words
‘‘payment,’’
“currency”
are
perhaps
not
apt
words
in
the
case
of
a
‘‘stock
dividend,
but
I
do
not
think
they
obscure
what
appears
to
be
the
intention
of
the
legislature.
It
being
known
that
a
stock
dividend
is
taxable
it
is
to
be
presumed
that,
before
payment
thereof,
provision
would
be
made
for
the
payment
of
the
tax
either
by
the
Company
or
the
taxpayer.
A
stock
dividend,
like
any
other
dividend,
is
based
upon
an
earned
reserve
or
surplus,
otherwise
the
dividend
would
not
be
64
CANADA
TAX
CASES
[1938-39]
declared.
Here,
it
is
agreed
that
the
whole
of
the
earned
surplus
so
capitalized
was
available,
prior
to
its
capitalization,
for
the
payment
of
cash
dividends
to
the
shareholders
of
the
defendant
company.
There
were
many
methods
available
to
the
defendant
to
ensure
the
collection
of
the
tax.
There
was
a
definite
statutory
obligation
on
the
part
of
the
defendant
to
withhold
the
tax
in
question.
At
first,
it
might
appear
that
the
section
of
the
Act
in
question
is
not
practically
operative
in
a
case
of
this
kind
and
was
not
therefore
intended
to
apply,
but
as
a
stock
dividend
is
a
dividend
and
taxable,
then
the
company
paying
it
must
make
some
provision
for
the
collection
of
the
tax.
I
assume
that
in
all
such
cases
if
the
liability
to
the
tax
is
conceded
there
would
be
no
difficulty
in
providing
for
its
payment.
The
case
of
Swan
Brewery
Company
Ltd.
v.
The
King,
[1914]
A.C.
231,
would
seem
applicable
here.
The
Dividend
Duties
Act,
1902,
of
Western
Australia,
provided
that
when
a
company
carrying
on
business
in
Western
Australia
and
not
elsewhere,
declared
a
dividend,
it
became
bound
to
pay
a
duty
of
5
per
cent
on
the
amount
or
value
of
the
dividend
before
distributing
the
same.
The
Act
described
the
word
"‘dividend’’
as
including
"‘every
profit,
advantage,
or
gain
intended
to
be
paid
or
credited
to
or
distributed
among
the
members
of
any
company.
‘‘
The
company
had
accumulated
a
reserve
fund
of
more
than
£101,450.
It
passed
the
necessary
resolutions
to
increase
its
capital
by
£101,450
divided
into
81,160
new
shares
of
£1
5s.
each.
These
new
shares
were
duly
allotted
to
the
then
shareholders
according
to
their
holdings
of
old
shares.
No
money
passed,
but
£101,450
was
transferred
from
the
reserve
fund
to
the
credit
of
the
share
capital
account,
and
thereafter
represented
the
capital
value
of
the
new
shares.
It
was
held
by
the
Judicial
Committee
that
these
transactions
were
in
effect
a
declaration
of
a
dividend
amounting
to
£101,450,
within
the
Dividend
Duties
Act,
and
that
the
Swan
Brewery
Company
was
liable
to
pay
duty
upon
that
amount.
In
delivering
the
judgment
of
the
Judicial
Committee
Lord
Sumner
said:
The
argument
is
that
there
has
been
no
dividend
and
no
distribution,
because
nothing
has
been
divided
and
nothing
changed.
Where
formerly
there
was
one
share,
enhanced
in
value
by
its
right
to
participate
in
the
reserve
fund,
if
the
company,
being
solvent,
should
be
wound
up
voluntarily,
now
there
are
two,
possessed
of
the
same
right
of
participation,
but
for
that
very
reason
worth
no
more
and
no
less
together
than
the
one
share
was
worth
before.
Formerly
the
company
had
a
certain
amount
of
capital;
now
it
has
the
same
without
diminution
or
increase
either
temporary
or
permanent.
The
change
is
but
one
of
name.
Formerly
its
funds
were
so
much
share
capital
and
so
much
reserve,
all
invested
in
the
business;
now
they
are
so
much
more
shares
capital
and
so
much
less
reserve,
all
invested
in
the
business
still
and
still
unchanged
in
total
amount.
The
duty
claimed
is
not,
it
is
said,
a
duty
on
or
nvi,
ii
io
saiù,
duiy
or
in
proportion
to
any
advantage
either
to
the
company
or
the
shareholder
measured
by
the
increased
stability
of
the
company’s
own
position
or
the
increased
facility
to
the
shareholder
in
marketing
his
shares;
it
is
measured
by
and
is
levied
upon
the
whole
nominal
value
of
the
new
shares
allotted,
which
is
not
the
same
thing
as
the
value
of
the
advantage
distributed.
Is
this
argument
sound?
Their
Lordships
agree
with
the
Supreme
Court
of
Western
Australia
in
thinking
that
it
is
not.
There
can
be
no
doubt
that
the
new
shares
were
distributed
and
were
not
the
same
things
as
the
old
ones.
They
certainly
were
supposed
to
be
advantages
to
the
members
of
the
company,
none
the
less
that
the
making
of
the
issue
was
probably
an
advantage
to
the
company
also.
In
so
flourishing
a
business
doubtless
they
really
were
advantages.
The
new
shares
were
credited
as
fully
paid,
and,
what
is
more,
they
were
fully
paid,
for
after
the
allotment
the
company
held
£101,450
as
capital
produced
by
the
issue
of
those
shares
and
for
that
consideration,
and
no
longer
as
an
undivided
part
of
its
accumulated
reserve
fund.
True,
that
in
a
sense
it
was
all
one
transaction,
but
that
is
an
ambiguous
expression.
In
business,
as
in
contemplation
of
law,
there
were
two
transactions,
the
creation
and
issue
of
new
shares
on
the
company’s
part,
and
on
the
allottees’
part
the
satisfaction
of
the
liability
to
pay
for
them
by
acquiescing
in
such
a
transfer
from
reserve
to
share
capital
as
put
an
end
to
any
participation
in
the
sum
of
£101,450
in
right
of
the
old
shares,
and
created
instead
a
right
of
general
participation
in
the
company’s
profits
and
assets
in
right
of
the
new
shares,
without
any
further
liability
to
make
a
cash
contribution
in
respect
of
them.
In
the
words
of
Parker,
C.J.,
"Had
the
company
distributed
the
£101,450
among
the
shareholders
and
had
the
shareholders
repaid
such
sums
to
the
company
as
the
price
of
the
81,160
new
shares,
the
duty
on
the
£101,450
would
clearly
have
been
payable.
Is
not
this
virtually
the
effect
of
what
was
actually
done?
I
think
it
is.”
I
am
of
the
opinion
that
here
the
defendant
is
liable
for
the
tax,
and
the
claim
of
the
plaintiff
is
accordingly
allowed,
and
with
costs.
Judgment
accordingly.
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