ANGERS,
J.:—This
is
an
appeal
from
an
assessment
by
the
Commissioner
of
Income
Tax
dated
the
30th
of
October,
1936,
affirmed
by
the
Minister
of
National
Revenue
on
July
26,
1937,
under
sections
58
and
following
of
the
Income
War
Tax
Act.
The
appellant
is
a
body
corporate
and
politic,
incorporated
hv
letters
patent
issued
in
virtue
of
the
Companies
Act,
1934
(24-25
Geo.
V,
chap.
33),
having
its
head
office
in
the
City
of
Sherbrooke,
in
the
Province
of
Quebec.
By
the
assessment
in
question
a
tax
is
levied
on
an
additional
sum
of
$12,746.68,
not
included
in
the
tax-payer’s
return,
representing,
in
the
words
of
the
notice
of
assessment,
""
interest
on
advances
to
Parent
Company
outstanding
from
June
30/34
to
June
30/35
$424,889.44
at
3
per
cent.”
The
return,
which
is
for
the
fiscal
year
ending
June
30,
1935,
is
dated
October
30,
1935,
and
was
presumably
delivered
to
the
Minister
on
that
date.
A
notice
of
assessment,
altering
the
amount
of
the
tax
as
aforesaid,
was
sent
to
the
appellant
on
October
30,
1936.
Within
the
delay
mentioned
in
section
58
of
the
Act,
namely
on
November
27,
1936,
the
taxpayer
served
a
notice
of
appeal
upon
the
Minister.
On
July
26,
1937,
the
Minister
rendered
his
decision
affirming
the
assessment
and
notified
the
appellant
accordingly.
Within
one
month
from
the
date
of
the
mailing
of
the
Minister’s
decision,
to
wit
on
August
23,
1937,
the
appellant
sent
to
the
Minister
a
notice
of
dissatisfaction
in
compliance
with
section
60
of
the
Act.
The
appellant
thereupon
gave
security
for
the
costs
of
the
appeal
to
the
satisfaction
of
the
Minister,
as
required
by
section
61
of
the
Act.
On
November
16,
1937,
the
Minister
replied
in
conformity
with
section
62,
denying
the
allegations
contained
in
the
notice
of
appeal
and
the
notice
of
dissatisfaction
and
confirming
the
assessment.
Pleadings
were
filed
pursuant
to
an
order
directing
the
parties
so
to
do.
The
appellant,
in
its
statement
of
claim,
alleges
in
substance:
All
of
its
outstanding
shares
(having
under
all
circumstances
full
voting
rights)
are
beneficially
owned
by
a
non-resident
company,
viz.
Julius
Kayser
&
Co.,
of
New
York
City,
a
corporation
created
under
the
laws
of
the
State
of
New
York,
herein
referred
to
as
the
parent
company
;
from
time
to
time
prior
to
June
30,
1935,
appellant
had
made
advances
or
appropriations
of
its
funds
in
favour
of
the
said
parent
company
and
the
amounts
thereof
were
treated
by
appellant
as
due
by
said
parent
company,
the
total
amount.
outstanding
on
June
30,
1935,
at
the
close
of
appellant’s
financial
year,
being
$818,767.88,
of
which
an
amount
of
$424,889.44
had
been
so
advanced
by
appellant
to
said
parent
company
prior
to
the
beginning
of
said
financial
year
on
July
1,
1934,
and
had
consequently
remained
outstanding
during
the
said
year
and
no
interest
thereon
had
been
paid
or
credited
to
appellant;
at
all
times
the
amounts
of
loans
or
advances
or
appropriation
of
its
funds
by
appellant
in
favour
of
said
parent
company
as
a
Shareholder
were
less
than
the
amount
which
appellant
had
on
hand
as
undistributed
income;
the
said
remittances
by
appellant
to
the
parent
company
by
way
of
loans
or
advances
or
appropriation
of
its
funds
in
favour
of
the
latter
did
not
necessarily
arise
from
the
carrying
on
by
appellant
of
its
manufacturing
business
and
were
not
incidental
thereto
;
the
appellant
has
been
assessed
in
respect
of
its
net
taxable
income
for
the
year
ended
June
30,
1935,
declared
by
it
under
the
provisions
of
the
Act,
on
an
additional
amount
of
alleged
taxable
income
in
the
sum
of
$12,746.68,
as
representing
interest
deemed
to
have
been
received
by
appellant
as
income
at
the
rate
of
3
per
cent
per
annum,
from
June
30,
1934,
to
June
30,
1935,
on
the
aforesaid
amount
of
$424,889.44
outstanding
during
the
said
period
as
loans
or
advances
theretofore
made
by
appellant
to
said
parent
company
;
the
appellant
objected
to
the
said
assessment
and
appealed
therefrom;
the
respondent
rendered
a
decision
affirming
the
assessment
and
notified
the
appellant
accordingly
;
thereupon
the
appellant
mailed
to
the
respondent
a
notice
of
dissatisfaction
and
furnished
security
for
the
costs
of
the
appeal;
the
respondent
replied
denying
the
allegations
contained
in
the
notice
of
dissatisfaction
and
confirming
the
assessment
as
having
been
properly
made
under
section
23a
of
the
Act;
the
action
of
respondent
is
not
justified
under
section
23a
or
any
other
provision
of
the
Act,
but
on
the
contrary
is
in
conflict
with
the
provisions
of
sections
18
and
20
of
the
Act;
the
assessment
in
question
is
unfounded
and
illegal
to
the
extent
to
which
it
treats
as
taxable
income
of
appellant,
during
the
taxation
period
aforesaid,
the
amount
of
$12,746.68.
In
his
statement
of
defence
the
respondent
pleads
in
substance
as
follows
:
He
admits
that
all
the
appellant’s
outstanding
shares
(which
have
under
all
circumstances
full
voting
rights)
are
beneficially
owned
by
a
non-resident
company,
viz.
Julius
Kayser
&
Company,
of
New
York
City;
he
admits
that
the
applicant
had
made
advances
to
Julius
Kayser
&
Company,
a
non-resident
company,
in
the
amount
of
$424,889.44
and
that
these
advances
had
been
made
prior
to
the
beginning
of
appellant’s
fiscal
year
commencing
July
1,
1934,
and
had
remained
outstanding
during
the
whole
of
said
fiscal
year,
without
interest
thereon
having
been
paid
or
credited
to
appellant;
he
admits
the
alleged
assessment
and
appeal
therefrom
;
he
denies
the
other
allegations
of
the
statement
of
claim;
the
appellant,
a
Canadian
company,
advanced
moneys
to
a
non-resident
company
and
such
advances
in
the
amount
of
$424,889.44
remained
outstanding
for
a
period
of
one
year,
no
interest
thereon
being
paid
or
credited
to
the
Canadian
company;
the
Minister
of
National
Revenue,
acting
within
the
powers
conferred
upon
him
by
the
Income
War
Tax
Act,
particularly
section
23a
thereof,
determined
that
interest
of
$12,746.68,
being
at
the
rate
of
3
per
cent
on
the
sum
of
$424,889.44,
shall
be
deemed
to
have
been
received
as
income
of
the
appellant
for
the
fiscal
year
commencing
July
1,
1934,
and
therefore
taxable
under
the
Act:
the
provisions
of
section
18
of
the
Act,
under
which
loans
or
advances
by
a
corporation
to
its
shareholders
are
deemed
to
be
dividends
to
the
extent
indicated
therein,
are
not
applicable
when
determining
the
income
of
the
corporation
subject
to
taxation,
the
provisions
of
said
section
being
applicable
only
when
determining
the
income
of
the
shareholder
;
the
provisions
of
section
18
are
not
inconsistent
with
those
of
section
23a,
which
specifically
applies
to
the
taxation
of
the
appellant.
The
issue
was
joined
by
appellant’s
reply,
which
prays
acte
of
admissions
contained
in
the
statement
of
defence
and
denies
the
other
allegations
thereof.
Walter
Mutchler,
general
manager
of
the
appellant
company,
testifying
on
behalf
of
his
employer,
declared
that
the
advances
of
funds
made
by
the
appellant
to
Julius
Kayser
&
Company,
of
New
York,
were
in
no
way
incidental
to
the
business
of
the
Canadian
company
and
that
they
always
were
much
less
than
its
undistributed
income
on
hand.
He
stated
that
the
appellant
‘s
business
could
have
been
carried
on
without
these
advances,
which,
according
to
him,
were
not
useful
to
the
company’s
business.
Julius
Kayser
&
Company,
of
New
York,
supplies
the
Canadian
company
with
the
raw
silk
which
the
latter
needs.
Asked
if
the
parent
company
furnished
the
appellant
with
any
other
services,
the
witness
replied
:
"
"
very
little.
’
‘
The
advances
made
to
the
parent
company
by
the
appellant
are
entered
in
the
latter’s
book
in
a
current
account
in
the
name
of
Julius
Kayser
&
Company,
New
York.
It
seems
to
me
expedient
to
cite
here
a
passage
from
Mutchler's
testimony
concerning
this
account
:
Q.
*
*
*
And
in
that
current
account
Julius
Kayser,
New
York,
is
credited
with
the
purchase
of
raw
silk
made
on
your
behalf?
A.
Yes.
Q.
And
it
is
debited
with
the
advances
which
you
make
to
it?
A.
Yes.
Q.
So
by
looking
at
the
current
account
it
would
seem
that
these
advances
made
by
you
went
in
part
in
payment
of
the
purchase
price
of
the
raw
silk
purchased
for
your
company?
A.
I
would
not
say
that,
because
there
is
always
enough
there
to
cover
our
purchases
without
that
amount
going
in.
Q.
Yes,
there
is
always
enough,
but
at
first
sight
that
is
what
the
account
would
appear
to
show,
that
part
of
these
advances
have
been
used
to
pay
up
the
amount
you
owe
the
New
York
company
for
the
purchases
made
for
you?
A.
Oh,
you
might
say
that,
and
you
might
say
there
is
a
whole
lot
more
left.
It
is
not
incidental
to
the
company,
I
wouldn’t
say.
Witness
said
it
was
his
company’s
custom
to
send
its
available
cash
to
the
parent
company
in
New
York.
Mutchler
was
asked
if
the
advances
in
question
had
been
made
by
appellant
to
the
New
York
company
pursuant
to
an
agreement
between
the
two
that
the
appellant
would
make
them
in
anticipation
of
purchase
of
raw
silk
or
other
raw
material;
the
witness
replied
in
the
negative
and
said
that
there
had
never
been
any
agreement
to
that
effect.
According
to
him,
when
the
parent
company
sees
that
there
is
more
money
on
hand
in
Montreal
than
is
needed,
it
decides
to
take
some
of
it
down
to
New
York.
Mutchler
stated
that
the
appellant
company
was
a
wholly
owned
subsidiary
of
the
New
York
company.
The
moneys
that
are
sent
to
the
parent
company
are
shown
in
appellant’s
books
as
advances
made
to
the
former
and
the
amount
assessed.
as
aforesaid
and
with
which
we
are
concerned
arose
in
that
way.
The
appellant
rests
its
claim
on
sections
18
and
20
of
the
Income
War
Tax
Act.
On
the
other
hand,
the
respondent
submits
that
the
question
at
issue
is
governed
by
section
23a.
The
first
paragraph
of
section
18,
which
is
the
only
one
relevant,
reads
as
follows:
For
the
purposes
of
this
Act,
any
loan
or
advance
by
a
corporation,
or
appropriation
of
its
funds
to
a
shareholder
thereof,
other
than
a
loan
or
advance
incidental
to
the
business
of
the
corporation
shall
be
deemed
to
be
a
dividend
to
the
extent
that
such
corporation
has
on
hand
undistributed
income
and
such
dividend
shall
be
deemed
to
be
income
received
by
such
shareholders
in
the
year
in
which
made.
Section
20
is
in
the
following
terms
:
The
undistributed
income
of
a
corporation
shall,
for
the
purposes
of
section
fifteen,
sixteen,
seventeen,
eighteen
and
nineteen,
be
deemed
to
be
reduced
by
the
amount
deemed
to
be
received
by
the
shareholders
as
a
dividend
by
virtue
of
the
provisions
of
the
said
sections
fifteen,
sixteen,
seventeen
and
eighteen.
Section
23a
reads
thus:
Whenever
a
Canadian
company
advances
or
has
advanced
moneys
to
a
non-resident
company
and
such
advances
remain
outstanding
for
a
period
of
one
year
without
any
interest
or
a
reasonable
rate
of
interest
having
been
paid
or
credited
to
the
Canadian
company,
the
Minister
may
for
the
purposes
of
this
Act,
determine
the
amount
of
interest
on
such
moneys
which
shall
be
deemed
to
have
been
received
as
income
by
the
Canadian
company.
The
evidence
shows
that
the
appellant
company
made
advances
in
the
sum
of
$424,889.44
to
Julius
Kayser
&
Company,
of
New
York,
which
beneficially
owns
all
the
issued
shares
of
the
capital
stock
of
the
appellant
company
(except
the
directors’
qualifying
shares),
which
have
under
all
circumstances
full
voting
rights.
The
proof
further
discloses
that
these
advances
were
made
prior
to
July
1,
1934,
that
the
amount
thereof
remained
outstanding
during
the
whole
of
the
appellant
company’s
fiscal
year
ending
June
30,
1935,
and
that
no
interest
was
paid
thereon.
It
seems
obvious
that
these
advances
were
paid
out
of
the
undistributed
income
which
the
appellant
company
had
on
hand
at
the
time
they
were
made.
I
do
not
think
that
the
question
at
issue
comes
within
the
scope
of
section
18.
The
object
of
this
section
is
to
create
a
tax
against
a
shareholder
who
receives
a
dividend
under
the
disguise
of
a
loan
or
advance;
it
has
nothing
to
do
with
the
corporation
which
pays
it
out.
I
may
add
that,
if
I
had
concluded
that
the
question
at
issue
does
come
within
the
scope
of
section
18,
I
would
have
been
inclined
to
believe
that
the
advances
in
question
were
incidental
to
the
business.
of
the
appellant
company.
Had
the
appellant
company
wished
to
declare
as
dividends
the
advances
made
to
Julius
Kayser
&
Company
it
could
have
done
so
and
the
dividends
so
declared
would
have
been
exempt
from
income
tax
in
virtue
of
subsection
11
of
section
9b,
which
reads
as
follows
:
The
tax
imposed
by
subsection
two
hereof
shall
not
apply
in
the
case
of
dividends
paid
to
a
non-resident
company
by
a
Canadian
company,
all
of
whose
shares
(less
directors’
qualifying
shares)
which
have
under
all
circumstances
full
voting
rights
are
beneficially
owned
by
such
non-resident
company:
Provided
that
not
more
than
one-
quarter
of
the
gross
income
of
the
Canadian
company
is
derived
from
interest
and
dividends
other
than
interest
and
dividends
received
from
any
wholly
owned
subsidiary
company:
Provided
further
that
such
non-resident
company
is
not
a.
company
incorporated
since
the
1st
April,
1933;
but
this
proviso
shall
not
apply
if
the
Minister
is
satisfied
that
such
incorporation
was
not
made
for
the
purpose
of
evading
the
tax
imposed
under
subsection
two
of
this
section.
There
is
nothing
in
the
evidence
to
show
that
these
advances
were
intended
as
dividends
;
quite
the
contrary.
In
the
appellant
company’s
books
they
are
debited
to
Julius
Kayser
&
Company
;
had
they
really
been
dividends,
there
is
no
reason
why
they
should
appear
in
the
appellant
company’s
books
as
a
liability
or
debt
of
Julius
Kayser
&
Company.
Moreover,
if
these
advances
were
dividends
legally
declared,
the
minute
book
of
the
appellant
company
should
show
it
and
a
copy
of
the
resolutions
authorizing
their
issue
should
have
been
produced.
The
burden
of
proof
was
incumbent
upon
appellant
and,
in
my
opinion,
it
has
failed
in
its
task.
The
appellant
company
chose
to
pay
out
its
profits
by
means
of
advances
and,
in
so
doing,
rendered
itself
subject
to
the
provisions
of
section
238..
For
these
reasons
I
have
reached
the
conclusion
that
the
assessment
must
be
maintained
and
the
appeal
dismissed.
The
respondent
will
have
his
costs
against
the
appellant.
Appeal
dismissed.