Davis
J.:—The
appellant
is
a
company
which
was
incorporated
under
the
Companies
Act
of
British
Columbia
on
the
23rd
day
of
March,
1932,
with
its
head
office
and
principal
place
of
business
in
the
city
of
Vancouver,
where
it
carried
on
a
laundry
and
dry
cleaning
business.
The
company
is
a
taxpayer
within
the
definition
of
that
word
in
the
(Dominion)
Income
War
Tax
Act,
R.S.C.,
1927,
chap.
97
and
amendments.
As
in
duty
bound
it
made
its
income
tax
return
to
the
Government
for
its
fiscal
year
that
ended
March
31st,
1933.
On
the
form
of
return
supplied
by
the
Income
Tax
Department
and
required
to
be
filled
in
and
returned,
the
appellant
set
out,
for
the
purpose
of
an
allowance
for
depreciation,
the
value
of
the
company’s
machinery
at
$146,690.13,
furniture
and
fixtures
at
$5,740.74,
horses
and
wagons
at
$1,352.50,
and
automobiles
at
$14,675.35;
and
in
its
said
return
the
appellant
claimed
deductions
for
depreciation
according
to
the
customary
percentages
which
were
being
allowed
by
the
Department:
10%
on
machinery,
horses
and
wagons,
furniture
and
fixtures;
and
20%
on
automobiles.
The
total
amount
of
depreciation
claimed
amounted
to
$17,255.55.
The
amount
was
totally
disallowed,
with
the
exception
of
$255.08
in
respect
of
three
new
motor
cars
which
had
been
purchased
by
the
appellant.
The
correctness
of
values
of
the
machinery
and
other
equipment
as
set
out
in
the
return
was
not
questioned
by
the
Department.
By
sec.
80
of
the
Income
War
Tax
Act,
Any
person
making
a
false
statement
in
any
return
or
in
any
information
required
by
the
Minister,
shall
be
liable
on
summary
conviction
to
a
penalty
not
exceeding
ten
thousand
dollars
or
to
six
months’
imprisonment,
or
to
both
fine
and
imprisonment.
No
fraud
or
improper
conduct
was
alleged
against
the
appellant.
What
was
said
against
the
appellant
was
that
the
machinery
and
other
equipment
(save
and
except
the
three
new
motor
cars)
had
been
purchased
by
the
appellant
from
another
company,
Home
Service
Company
Limited,
and
that
the
latter
company
in
turn
had
purchased
the
same
from
the
liquidator
of
still
another
company
(hereinafter
for
convenience
called
"‘the
first
company’’),
which
had
had
the
same
name
as
the
appellant
company,
and
that
the
shareholders
of
the
appellant
are
the
same
persons
as
the
shareholders
of
the
first
company
(which
had
gone
into
voluntary
liquidation)
and
that
as
the
first
company
had
been
allowed
over
a
period
of
years,
approximately
100%
depreciation
on
its
book
values
of
the
said
machinery
and
equipment,
the
present
company,
appellant,
is
not
entitled
to
any
deduction
for
depreciation
upon
the
same
machinery
and
equipment.
Further,
it
was
said
against
the
appellant
that
it
set
up
its
assets
on
its
books
at
a
greater
sum
than
that
at
which
the
same
assets
had
been
carried
on
the
books
of
the
first
company.
The
appellant
does
not
deny
that.
It
was
proved
in
evidence
that
the
figures
which
the
appellant
set
up
in
its
books
as
the
value
of
the
assets
in
question
were
the
same
as
the
prices
which
had
been
fixed
by
an
independent
appraisal
as
the
purchase
price
of
the
machinery
and
equipment
when
purchased
by
the
appellant
from
the
said
Home
Service
Company
Limited.
The
appellant
admitted
that
these
amounts
were
greater
than
the
amounts
at
which
the
same
assets
had
been
carried
on
the
books
of
the
first
company—but,
it
said,
that
was
no
concern
of
its.
What
is
suggested
is
that
the
first
company
had
carried
these
assets
on
its
books
for
years,
in
fact
prior
to
the
coming
into
existence
of
a
Dominion
income
tax
in
1917,
at
valuations
much
below
their
real
value,
in
consequence
of
which
the
allowance
for
depreciation
to
that
company,
on
the
ordinary
percentage
basis
that
had
been
adopted
by
the
Department,
had
become
exhausted.
The
appellant
is
a
separate
legal
entity.
The
Government
looks
to
it
as
such
as
a
taxpayer
and
has
assessed
it
for
income
tax.
What
then
are
its
rights?
It
is
taxable
upon
its
income,’’
which
by
sec.
3
of
the
Act
means
its
‘‘annual
net
profit
or
gain.’’
Now
the
annual
net
profit
or
gain
of
a
commercial
corporation
cannot
fairly
be
arrived
at
without
taking
into
account
depreciation
in
its
machinery
and
equipment
due
to
the
ordinary
wear
and
tear
during
the
year.
While
sec.
6(b)
of
the
Act
provides
that
in
computing
the
amount
of
the
profits
or
gains
to
be
assessed
a
deduction
is
not
to
be
allowed
in
respect
of
any
depreciation,
depletion
or
obsolescence,
*
"
except
as
otherwise
provided
in
this
Act,
‘
‘
sec.
5
had
provided
that
"‘Income’’
as
hereinbefore
defined
shall
for
the
purposes
of
this
Act
be
subject
to
the
following
exemptions
and
deductions
:—
(a)
Such
reasonable
amount
as
the
Minister,
in
his
discretion,
may
allow
for
depreciation,
.
.
.
It
was
under
this
sec.
5
that
the
Minister
of
National
Revenue
disallowed
entirely
the
deduction
claimed
from
gross
profits
in
respect
of
depreciation
of
the
machinery
and
equipment.
The
decision
of
the
Minister
was
in
fact
the
decision
of
the
Commissioner
of
Income
Tax
whom
the
Minister,
purporting
to
act
under
and
by
virtue
of
the
provisions
of
the
Act
and
particularly
sec.
75
thereof,
had
authorized
to
exercise
the
powers
conferred
by
the
said
Act
upon
the
Minister
as
fully
and
effectively
as
he
could
do
himself,
he
being
of
the
opinion
that
such
powers
may
be
more
conveniently
exercised
by
the
said
Commissioner
of
Income
Tax.
Counsel
for
the
appellant
took
no
objection
to
the
fact
that
the
decision
was
that
of
the
Commissioner
and
not
that
of
the
Minister.
The
grounds
for
denying
any
depreciation
on
the
said
machinery
and
equipment
to
the
appellant
were
very
frankly
and
fairly
stated
in
the
decision,
as
follows
:
The
Honourable
the
Minister
of
National
Revenue,
having
duly
considered
the
facts
as
set
forth
in
the
Notice
of
Appeal
and
matters
thereto
relating
hereby
affirms
the
said
assess-
ment
on
the
ground
that
while
the
company
was
incorporated
and
commenced
operations
during
the
year
1932
there
was
no
actual
change
in
ownership
of
the
assets
purchased
or
taken
over
from
Pioneer
Investment
Company
Limited
by
Home
Service
Company
Limited
(of
which
the
taxpayer
is
a
subsidiary)
and
set
up
in
the
books
of
the
taxpayer
at
appreciated
values;
that
in
the
exercise
of
the
statutory
discretion,
a
reasonable
amount
has
been
allowed
for
depreciation
and
that
the
assessment
is
properly
levied
under
the
provisions
of
the
Income
War
Tax
Act.
Notice
of
such
decision
is
hereby
given
in
accordance
with
section
59
of
the
said
Act.
Dated
at
Ottawa
this
30th
day
of
May,
A.D.
1935.
R.
C.
MATTHEWS,
Minister
of
National
Revenue,
per
C.
F.
ELLIOTT,
Commissioner
of
Income
Tax.
The
appellant
was
entitled
to
an
exemption
or
deduction
in
‘“such
reasonable
amount
as
the
Minister,
in
his
discretion,
may
allow
for
depreciation.
‘
‘
That
involved,
in
my
opinion,
an
administrative
duty
of
a
quasi-judicial
character—a
discretion
to
be
exercised
on
proper
legal
principles.
Section
60
of
the
Act
entitles
a
taxpayer,
after
receipt
of
the
decision
of
the
Minister
upon
appeal
from
an
assessment,
if
dissatisfied
therewith,
to
appeal
to
the
Court.
The
decision
is
appealable
;
but
the
exercise
of
the
discretion
will
not
be
interfered
with
unless
it
was
manifestly
against
sound
and
fundamental
principles.
The
Commissioner
of
Income
Tax
put
his
denial
of
any
amount
for
depreciation
on
the
said
machinery
and
equipment
upon
the
ground
that
"‘there
was
no
actual
change
of
ownership
of
the
assets’’
and
they
were
"‘set
up
in
the
books
of
the
taxpayer
at
appreciated
values.
‘
‘
In
my
view
that
was
not
a
proper
ground
upon
which
to
exercise
the
discretion
that
had
been
vested
in
the
Minister.
The
Commissioner
was
not
entitled,
in
the
absence
of
any
fraud
or
improper
conduct,
to
disregard
the
separate
legal
existence
of
the
company
and
to
inquire
as
to
who
its
shareholders
were
and
at
what
figures
these
assets
had
been
carried
on
the
books
of
some
other
individual,
partnership
or
corporation.
In
the
words
of
Lindley
J.
(as
he
then
was)
in
Ryhope
Coal
Company,
Lid.
v.
Foyer
(1881),
7
Q.B.D.
485,
at
498:
This
company
was
incorporated
and
formed
on
the
21st
of
December,
1875,
under
the
Companies
Act
of
1862,
by
persons
who
had
for
many
years
previously
carried
on
and
worked
the
colliery
which
the
company
was
formed
to
continue
to
work
and
carry
on.
The
Income
Tax
Commissioners
have
assessed
the
company
upon
the
principle
that
the
company
is
in
substance,
and
for
legal
purposes,
the
same
as
the
old
partners.
In
my
opinion,
at
starting,
that
cannot
be
right
in
point
of
law.
À
company
incorporated
under
the
Act
of
1862
is
for
no
legal
purpose
the
same
as
the
persons
who
have
become
a
corporation
with
distinct
rights
and
distinct
liabilities,
and
whether
the
shares
are
bought
by
those
who
form
it
seems
to
me
for
that
purpose
utterly
immaterial;
and
I
think,
therefore,
the
principle
on
which
the
Commissioners
have
proceeded
from
first
to
last
in
assessing
this
corporation
of
five,
six,
or
seven
old
partners,
is
to
be
regarded
as
erroneous
and
fundamentally
wrong.
The
appellant
was
a
new
owner
for
all
legal
purposes
and
its
predecessor’s
depreciation
allowance
is
immaterial
when
considering
what
is
a
reasonable
amount
to
be
allowed
for
its
own
depreciation.
What
is
virtually
said
here
against
the
appellant
is—You
are
entitled
to
nothing
because
the
beneficial
ownership
of
your
company
is
the
same
as
the
beneficial
ownership
of
another
company
from
which,
indirectly,
you
purchased
your
machinery
and
equipment
and
we
are
entitled
to
look
right
through
your
legal
existence
and
say
that
you
are
entitled
to
nothing
at
all
for
depreciation
on
your
machinery
and
equipment.
In
my
view
that
is
not
a
legitimate
exercise
of
the
discretion
which
Parliament
vested
in
the
Minister.
I
have
not
the
slightest
doubt
that
the
Commissioner
was
as
anxious
to
do
justice
as
I
am,
but
the
public
have
been
given
the
right
to
appeal
to
the
court
from
the
decision
of
the
Minister
and
if
the
court
is
of
the
opinion
that
in
a
given
case
the
Minister
or
his
Commissioner
has,
however
unintentionally,
failed
to
apply
what
the
court
regards
as
fundamental
principles,
the
court
ought
not
to
hesitate
to
interfere.
I
confess
that
I
am
influenced
in
this
case
by
the
insistence
of
many
great
judges
upon
the
full
recognition
of
the
separate
legal
entity
of
a
joint
stock
company
and
the
impropriety
in
dealing
with
its
affairs
of
ignoring
its
legal
status
as
if
it
had
never
been
incorporated
and
organized.
And
as
to
the
familiar
argument
that
we
ought
always
to
look
‘‘at
the
substance’’
of
the
thing,
I
shall
only
refer
to
the
words
of
Lord
Tomlin
in
Inland
Revenue
Commissioners
v.
The
Duke
of
Westminster,
[1936]
A.C.
1,
at
19:
Apart,
however,
from
the
question
of
contract
with
which
I
have
dealt,
it
is
said
that
in
revenue
cases
there
is
a
doctrine
that
the
court
may
ignore
the
legal
position
and
regard
what
is
called
"‘the
substance
of
the
matter,
”
and
that
here
the
substance
of
the
matter
is
that
the
annuitant
was
serving
the
Duke
for
something
equal
to
his
former
salary
or
wages,
and
that
therefore,
while
he
is
so
serving,
the
annuity
must
be
treated
as
salary
or
wages.
This
supposed
doctrine
(upon
which
the
Commissioners
apparently
acted)
seems
to
rest
for
its
support
upon
a
misunderstanding
of
language
used
in
some
earlier
cases.
The
sooner
this
misunderstanding
is
dispelled,
and
the
supposed
doctrine
given
its
quietus,
the
better
it
will
be
for
all
concerned,
for
the
doctrine
seems
to
involve
substituting"the
incertain
and
crooked
cord
of
discretion’’
for
""the
golden
and
str
eight
metwand
of
the
law’’
(4
Inst.
41).
Every
man
is
entitled
if
he
can
to
order
his
affairs
so
as
that
the
tax
attaching
under
the
appropriate
Acts
is
less
than
it
otherwise
would
be.
If
he
succeeds
in
ordering
them
so
as
to
secure
this
result,
then,
however
unappreciative
the
Commissioners
of
Inland
Revenue
or
his
fellow
taxpayers
may
be
of
his
ingenuity,
he
cannot
be
compelled
to
pay
an
increased
tax.
This
so-called
doctrine
of
‘‘the
substance’’
seems
to
me
to
be
nothing
more
than
an
attempt
to
make
a
man
pay
notwithstanding
that
he
has
so
ordered
his
affairs
that
the
amount
of
tax
sought
from
him
is
not
legally
claimable.
Lord
Loreburn
in
the
House
of
Lords
in
Leeds
Corporation
v.
Ryder,
[1907]
A.C.
420,
at
423,
424,
said
that
the
justices
there
were
acting
"
"
administratively,
for
they
are
exercising
a
discretion
which
may
depend
upon
considerations
of
policy
and
practical
good
sense—and
they
must,
of
course,
act
honestly.
That
is
the
total
of
their
duty.”
But
that
was
a
certiorari
proceeding
and
the
Licensing
Act
under
consideration
‘‘expressly
leaves”
as
Lord
Loreburn
observed,
to
the
discretion
of
the
justices
whether
they
will
grant
licences
or
not
to
persons
whom
they
deem
fit
and
proper
persons.
That
was,
of
course,
quite
a
different
case
from
the
appeal
now
before
us.
Here
the
Minister
was
to
say
what
was
4
‘‘a
reasonable
amount’’
to
be
allowed
for
depreciation
and
he
says,
in
effect—
nothing.
The
statute
expressly
gives
the
taxpayer
a
right
of
appeal
from
the
Minister’s
decision.
In
The
Queen
v.
Vestry
of
St.
Paneras
(1890),
24
Q.B.D.
371,
a
metropolitan
vestry
had
a
discretion
by
a
statute
not
merely
as
to
granting
or
refusing
a
superannuation
allowance
to
a
retiring
officer,
but
also,
if
an
allowance
were
granted,
as
to
the
amount,
subject
to
the
scale
of
maximum
allowance
prescribed
by
the
statute.
Lord
Esher,
at
p.
375,
said:
If
people
who
have
to
exercise
a
public
duty
by
exercising
their
discretion
take
into
account
matters
which
the
Courts
consider.
not
to
be
proper
for
the
guidance
of
their
discretion,
then
in
the
eye
of
the
law
they
have
not
exercised
their
discretion.
The
Income
War
Tax
Act
gives
a
right
of
appeal
from
the
Minister’s
decisions
and
while
there
is
no
statutory
limitation
upon
the
appellate
jurisdiction,
normally
the
Court
would
not
interfere
with
the
exercise
of
a
discretion
by
the
Minister
except
on
grounds
of
law.
But
here
the
Commissioner,
acting
for
the
Minister,
did
exercise
a
discretion
upon
what
I
consider
to
be
wrong
principles
of
law
and
it
is
the
duty
of
the
Court
in
such
circumstances
to
remit
the
case,
as
provided
by
sec.
65(2)
of
the
Act,
for
a
reconsideration
of
the
subject-matter,
stripped
of
the
application
of
these
wrong
principles.
I
would
therefore
allow
this
appeal,
set
aside
the
assessment
and
the
judgment
appealed
from
and
refer
the
matter
back
to
the
Minister.
The
appellant
should
have
its
costs
throughout.
The
judgment
of
Crocket
and
Hudson
JJ.
was
delivered
by
Hudson
J.:—The
appellant
company
in
its
income
tax
return
for
the
fiscal
period
ending
March
31st,
1933,
claimed
a
depreciation
allowance
of
$17,775.55.
The
Minister,
on
an
appeal
to
him,
disallowed
this
claim
with
the
exception
of
$255.08,
and
an
appeal
from
his
decision
to
the
Exchequer
Court
of
Canada
was
dismissed.
The
appellant
contends
(1)
that
under
section
5(b)
of
the
Income
War
Tax
Act
the
Minister
is
obliged
to
make
some
allowance
for
depreciation;
and
(2)
that,
in
consequence
of
certain
directions
issued
by
him
from
time
to
time
to
inspectors
of
income
tax,
such
allowance
should
be
on
a
percentage
basis
as
therein
specified.
The
Minister,
on
the
other
hand,
contends
that
under
section
5
he
has
an
unfettered
discretion
to
allow
or
disallow
any
claim
in
respect
of
depreciation,
and
moreover
that
in
the
present
case
the
appellant
company,
although
technically
a
different
legal
entity
from
a
former
company
of
the
same
name
is
in
reality
the
alter
ego
of
the
old
company,
having
the
same
name,
the
same
shareholders,
the
same
assets
for
few
exceptions
and
no
new
capital,
and
that
the
old
company
had
already
been
allowed
a
total
of
100%
depreciation
in
respect
of
the
assets
in
question,
and
under
these
circumstances
that
he,
the
Minister,
had
not
acted
unreasonably.
The
relevant
provisions
of
the
Act
are
as
follows:
the
charging
section
is
No.
9
:
9.
There
shall
be
assessed,
levied
and
paid
upon
the
income
during
the
preceding
year,
of
every
person
(a)
residing
or
ordinarily
resident
in
Canada
during
such
year
;
*****
2.
Save
as
herein
otherwise
provided,
corporations
and
joint
stock
companies,
no
matter
how
created
or
organized,
shall
pay
a
tax
upon
income
at
the
rate
applicable
thereto
set
forth
in
the
first
schedule
of
this
Act.
Section
3
defines
income
as
the
annual
net
profit
or
gain.
Section
6
provides
:
6.
In
computing
the
amount
of
the
profits
or
gains
to
be
assessed,
a
deduction
shall
not
be
allowed
in
respect
of
*****
(b)
any
outlay,
loss
or
replacement
of
capital
or
any
payment
on
account
of
capital
or
any
depreciation,
depletion
or
obsolescence,
except
as
otherwise
provided
in
this
Act.
Section
5:
5.
‘‘Income’’
as
hereinbefore
defined
shall
for
the
purposes
of
this
Act
be
subject
to
the
following
exemptions
and
deductions
:
(a)
Such
reasonable
amount
as
the
Minister,
in
his
discretion,
may
allow
for
depreciation.
Reading
these
sections
by
themselves
and
without
reference
to
any
outside
authorities,
it
would
seem
fairly
plain
that
it
was
the
intention
of
Parliament
that
there
should
be
no
depreciation
allowance
unless
the
Minister,
in
his
sole
discretion,
decided
that
there
should
be.
There
is
nothing
anywhere
to
indicate
the
principle
or
basis
on
which
the
depreciation
allowance
is
to
be
ascertained.
It
might
vary
according
to
different
accounting
methods,
different
economic
theories,
different
general
business
conditions
in
the
country.
Nor
is
there
anything
in
the
statute
which
denies
a
right
in
the
Minister
to
look
beyond
the
legal
facade
for
the
purpose
of
ascertaining
the
realities
of
ownership
or
the
possibilities
of
schemes
to
avoid
taxation,
and
it
would
seem
to
be
that
it
was
the
intention
of
Parliament
that
the
Minister,
and
he
alone,
could
properly
estimate
these
different
factors.
The
authorities
cited
on
behalf
of
the
appellant
are
mostly
of
statutes,
somewhat
differently
worded
from
ours,
and
in
effect
hold
no
more
than
that
where
the
statute
gives
a
discretion
to
administrative
officers
and
provides
an
area
in
time
or
space
for
the
exercise
of
such
discretion,
the
Commissioners
must
take
that
into
account.
In
the
present
case,
the
Minister
has
exercised
his
discretion
and,
as
already
stated,
the
statute
does
not
define
or
limit
the
field
for
operation
of
such
discretion.
The
second
point
raised
by
the
appellant
need
not
be
discussed.
The
regulations
referred
to
turned
out
to
be
merely
directions
given
to
local
officers
of
the
department
for
their
general
guidance
and
could
not
be
considered
as
any
general
rule
binding
in
any
way
on
the
Minister.
I
would
dismiss
the
appeal
with
costs.
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