MACLEAN,
J.:—These
are
appeals,
consolidated,
from
decisions
of
the
Minister
of
National
Revenue
affirming
assessments
made
in
1937
upon
the
Dominion
Textile
Company
Ltd.,
hereinafter
to
be
referred
to
as
‘‘the
Company,’’
under
The
Business
Profits
War
Tax
Act,
1916
(hereafter
to
be
referred
to
as
"‘The
Business
Profits
Act’’),
for
the
years
1915
to
1919,
both
inclusive,
and
under
The
Income
War
Tax
Act
for
the
years
1920
to
1934,
both
inclusive.
The
Company
had
been
assessed
for
the
business
profits
tax
and
the
income
tax
for
the
years
just
mentioned;
the
said
assessments
for
such
taxes
were
in
due
course
paid
by
the
Company
;
the
assessments
herein
appealed
from
were
in
the
nature
of
revisions
of
those
assessments
and
it
will
be
convenient
to
refer
to
them
as
such
even
if
that
be
not
strictly
accurate.
The
revision
of
the
assessments
for
the
business
profits
tax
purport
to
have
been
made
under
the
authority
of
Chap.
19
of
the
Statutes
of
Canada
for
the
year
1937,
entitled
i(
An
Act
to
revive
and
amend
The
Business
Profits
War
Tax
Act,
1916”
(hereafter
to
be
referred
to
as
"The
1937
Act’’),
and
the
Business
Profits
Act,
and
the
revision
of
the
assessments
for
the
income
tax
purport
to
have
been
made
under
the
provisions
of
The
Income
War
Tax
Act.
Generally,
it
is
the
contention
of
the
Company
that
it
had
been
already
assessed
for
the
business
profits
tax
and
the
income
tax
for
the
respective
periods
mentioned;
that
the
said
taxes
were
in
due
course
paid
and
the
receipt
therefor
acknowledged
on
behalf
of
the
Minister
of
National
Revenue
(hereafter
to
be
referred
to
as
""the
Minister”)
;
and
that
there
were
no
grounds
of
fact
or
law
for
the
revision
of
the
assessments
for
the
business
profits
tax
made
upon
the
Company
because
that
tax
had
already
been
assessed
in
conformity
with
the
statute
and
paid.
It
is
also
the
contention
of
the
Company
that
if
the
Minister
is
authorized
to
open
up
any
assessments
made
under
the
taxing
statutes
mentioned
and
which
assessments
of
the
tax
had
been
paid,
the
Company
is,
of
right,
entitled
to
raise
any
question
of
fact
or
law
relative
to
such
assessments,
and
that
does
not
appear
to
be
contested.
I
might
observe
that
the
result
of
the
revision
of
the
assessment
made
in
each
of
the
twenty
accounting
periods
mentioned
was
that
in
nine
accounting
periods
the
Company’s
assessment
was
reduced
below
the
amount
of
the
original
assessment,
and
in
the
remaining
eleven
periods
it
was
increased.
The
inventories
of
the
Company,
a
manufacturer
of
textiles,
normally
consisted
of
three
classes,
namely
:
raw
cotton
and
other
raw
materials,
goods
manufactured
and
goods
in
process
of
manufacture,
and
stores
and
supplies.
The
officers
of
the
Minister
in
revising
the
assessments
in
controversy
departed
from
the
method
pursued
by
the
Company
throughout
the
years
in
question
in
valuing
its
inventories,
and
they
valued
such
inventories,
including
goods
in
process
of
manufacture,
on
the
basis
of
the
lower
of
cost
or
market.
The
Company,
in
respect
of
its
raw
cotton
inventories,
followed
the
method
which
it
had
pursued
prior
to
the
introduction
of
the
Business
Profits
Act
in
1916,
but,
as
I
understand
it,
a
different
method
was
followed
in
respect
of
goods
in
process
of
manufacture,
and,
I
think,
goods
manufactured.
It
is
not
necessary
now
to
describe
the
method
pursued
by
the
Company
in
respect
of
the
valuation
of
its
inventories,
and
I
would
infer
that
it
makes
little
difference
in
practice
what
reasonable
method
is
adopted
provided
consistency
is
observed
in
the
application
of
the
method.
Accordingly,
the
Company’s
method
of
valuing
its
inventories
being
varied
by
the
Minister
in
the
course
of
revising
the
assessments
for
each
of
the
accounting
periods
in
question,
the
amount
of
the
capital
em-
ployed
by
the
Company
in
its
business,
the
annual
profits
earned
by
it,
and
ultimately
the
amount
of
the
tax
assessed
against
the
Company,
would
be
varied
up
or
down
by
this
change
in
the
method
of
inventory
valuation.
The
correctness
of
the
basis
employed
by
the
Minister
in
the
revaluation
of
the
Company’s
inventories,
the
Company
in
its
notice
of
dissatisfaction
contested,
and
this
issue
threatened
a
protracted
inquiry
upon
the
appeals.
At
an
early
stage
in
the
hearing
of
the
appeals
the
parties
very
properly
attempted
to
agree
upon
some
basis
for
the
valuation
of
all
the
Company’s
inventories,
including
goods
in
process
of
manufacture,
for
the
whole
period
from
March
31,
1915,
to
March
31,
1934,
and
in
the
end
an
agreement
was
reached
and
the
same
was
committed
to
writing,
and
it
is
as
follows
:
With
the
approval
of
the
Court,
the
parties
herein
agree
as
follows:
(1)
That
for
the
whole
period
comprising
the
appellant’s
financial
years
ending
March
31st,
1915,
to
March
31st,
1984,
both
inclusive,
all
inventories
of
the
appellant,
including
goods
in
process,
be
valued
at
the
lower
of
cost
or
market
and
that,
in
relation
to
such
inventories,
the
respondent’s
figures
as
to
the
market
price
per
pound
and
the
cost
price
per
pound
(as
shown
in
column
headed
“Average
Inventory
price
as
adjusted
by
Dept.”
in
Exhibit
No.
1
filed
with
the
answer
of
the
respondent)
be
adopted,
the
whole
without
prejudice
to
and
under
reserve
of
all
the
other
contentions
of
the
parties,
whether
of
fact
or
of
law,
including
but
without
limiting
the
generality
of
the
foregoing,
the
contentions
of
the
parties
in
regard
to
the
invested
capital
of
the
appellant
and
the
contentions
of
the
parties
in
regard
to
the
amount
of
$500,000
for
1919
mentioned
in
par.
40
of
the
answer
of
the
respondent.
(2)
That
if
the
result
of
the
valuation
of
the
inventories
on
the
foregoing
basis
and
of
the
adjudication
of
the
Court
upon
the
other
contentions
of
fact
and
of
law
of
the
parties
is
that,
in
respect
of
the
whole
period
under
review,
the
appellant
owes
any
balance
of
taxes
to
the
Crown,
the
appellant
will
pay
such
balance
forthwith
after
such
valuation
and
adjudication,
and
if
the
result
is
a
credit
in
the
appellant’s
favour
the
amount
of
that
credit
will
be
credited
against
income
taxes
for
years
subsequent
to
1934.
Should
any
amount
be
thus
found
due
by
the
appellant,
it
will
bear
interest
at
five
per
cent.
per
annum
from
August
6,
1937.
(3)
The
parties
agree
that
the
quantities
or
volumes
of
raw
cotton,
dealt
with
in
the
assessments
before
the
Court,
include
the
quantities
or
volumes
mentioned
in
Exhibit
“A,”
attached
hereto
and
do
not
include
the
quantities
or
volumes
referred
to
in
the
next
succeeding
paragraph.
(4)
That
the
quantities
of
raw
cotton
in
public
warehouses
in
1927,
1929,
1930,
1931,
1932
and
1934
are
not
included
in
the
inventories
referred
to
in
the
immediately
preceding
paragraph.
It
will
be
seen
from
this
agreement
that
the
inventories
of
the
Company,
including
goods
in
process,
from
March,
1915,
to
March,
1934,
both
inclusive,
are
to
be
valued
at
the
lower
of
cost
or
market,
but
without
prejudice
to
all
the
other
contentions
raised
by
the
parties,
whether
of
fact
or
of
law,
including
the
contentions
of
the
parties
in
regard
to
the
invested
capital
of
the
Company,
and
in
regard
to
the
amount
of
$500,000
mentioned
in
paragraph
40
of
the
Answer
of
the
Respondent.
I
was
led
to
expect
that
the
parties
would
be
able
to
agree
in
the
result
of
the
valuation
of
the
inventories
upon
the
basis
indicated
in
the
agreement,
and
there
should
be
no
reason
for
their
not
being
able
to
do
so
;
however,
in
the
event
of
the
parties
failing
to
agree
in
the
result
of
a
revaluation
of
the
inventories
of
the
Company,
on
the
basis
provided
by
the
agreement,
I
now
direct
a
Reference
to
the
Registrar
for
that
purpose,
and
the
matter
of
costs
of
that
Reference
will
be
reserved
pending
the
Report
of
the
Registrar.
That,
for
the
present
at
least,
will
dispose
of
that
issue.
The
other
questions
of
fact
or
law
to
be
decided
here
have
reference
to
(1)
the
amount
of
capital
employed
by
the
Company
in
its
business,
including
unimpaired
reserves,
rest,
or
accumulated
profits,
under
the
Business
Profits
Act,
(2)
whether
an
amount
of
$500,000,
put
to
reserve
by
the
Company
in
the
accounting
period
of
1919,
in
view
of
anticipated
losses
in
raw
cotton
inventories,
was
considered
and
allowed
by
the
taxing
officers
of
the
Minister
for
taxation
purposes
in
the
assessment
for
that
period
under
the
Business
Profits
Act,
and
if
so
whether
or
not
that
allowance
may
now
be
disturbed,
and
(3)
whether
the
1937
Act,
and
the
Business
Profits
Act
which
the
former
purports
to
revive,
authorize
a
reconsideration
and
revision
of
any
assessment
levied
against
and
paid
by
the
Company
under
the
Business
Profits
Act,
in
the
periods
from
1915
to
1919
inclusive.
Should
I
find
that
the
assessments
for
the
business
profits
tax
made
upon
the
Company,
for
the
periods
mentioned,
cannot
be
opened
up
and
fresh
assessments
made,
then
the
questions
raised
for
determination
and
which
I
have
just
above
numbered
(1)
and
(2)
will
disappear,
but
that
will
not
disturb
the
results
deriving
from
the
revaluation
of
the
inventories
under
the
agreement
mentioned.
However,
I
propose
discussing
and
pronouncing
upon
the
first
two
points,
and
in
the
order
stated,
regardless
of
the
construction
to
be
put
upon
the
1937
Act
and
the
Business
Profits
Act,
the
third
point.
In
the
event
of
an
appeal
I
think
it
is
desirable
that
I
pursue
such
a
course.
It
will
be
desirable
to
refer
to
the
origin
and
early
history
of
the
Company
and
it
will
be
convenient
to
do
so
at
this
stage.
This
is
of
importance
because
the
favourable
development
of
the
financial
position
of
the
Company
from
its
inception
in
1905
down
to
January
1,
1915,—the
latter
an
important
date,
as
will
later
appear—enters
into
one
or
more
of
the
issues
here
to
be
decided.
This
requires
a
reference
to
four
textile
companies,
operating,
I
understand,
chiefly
in
the
Province
of
Quebec,
the
control
of
which
concerns
was
acquired
by
the
Company
in
1905
in
the
manner
I
am
about
to
relate.
Late
in
1904
a
group
of
men
formed
a
syndicate
for
the
purpose
of
making
an
offer
to
the
shareholders
of
the
four
textile
companies
to
purchase
their
shares
in
the
capital
stock
of
such
companies.
These
four
companies
were
the
Dominion
Cotton
Mills
Company
Ltd.,
the
Merchants
Cotton
Company
Ltd.,
the
Montmorency
Cotton
Mills
Company
Ltd.,
and
the
Colonial
Bleaching
&
Cotton
Company
Ltd.
The
Syndicate
deposited
with
The
Royal
Trust
Company
the
sum
of
$1,000,000
as
evidence
of
good
faith
and
ability
to
implement
the
terms
of
the
offer
about
to
be
made.
The
offer
of
the
Syndicate,
made
early
in
1905,
through
the
agency
of
the
Royal
Trust
Company,
was
to
purchase
the
said
shares
at
a
stated
percentage
of
their
par
value,
which
varied
according
to
the
company
to
which
the
offer
applied,
paying
for
the
same
in
the
bonds
and
preference
shares
of
a
new
company
to
be
formed,
in
designated
proportions.
It
was
also
a
term
of
the
offer
that
the
Syndicate
would
purchase
for
cash,
at
their
par
value,
preference
shares
of
the
Company
to
be
formed
in
the
total
amount
of
$500,000,
and
would
also
pay
to
the
new
company
the
sum
of
$500,000,
both
of
which
sums
were
to
be
paid
out
of
the
$1,000,000
deposited
with
the
Royal
Trust
Company.
In
due
course
the
offer
was
submitted
to
the
shareholders
and
the
Syndicate
acquired
a
majority
of
the
shares
in
each
of
the
four
companies,
or
the
right
to
acquire
the
same,
and
a
new
company
was
formed
under
the
name
of
the
Dominion
Textile
Company
Ltd.,
the
Company
herein.
The
Syndicate
then
offered
to
sell
to
the
Company
24,467
shares
of
the
capital
stock
of
the
Dominion
Cotton
Mills
Company
Ltd.,
out
of
a
total
issue
of
30,336
shares;
14,118
shares
of
the
capital
stock
of
the
Merchants
Cotton
Company
Ltd.,
out
of
a
total
issue
of
15,000
shares;
9,693
shares
of
the
capital
stock
of
the
Montmorency
Cotton
Mills
Company
Ltd.,
out
of
a
total
issue
of
10,000
shares;
and
2,368
shares
of
the
capital
stock
of
the
Colonial
Bleaching
and
Printing
Company
Ltd.,
out
of
a
total
issue
Of
3,000
shares,
all
the
shares
of
the
said
four
companies
being
of
the
par
value
of
$100
each,
and
further
to
pay
to
the
Company
the
sum
of
$500,000
in
cash;
in
consideration
therefor
the
Company
was
required
to
issue,
allot
and
deliver
to
the
Syndicate,
or
its
nominees,
12,222
fully
paid-up
and
non-assess-
able
preference
shares
of
the
Company
of
the
par
value
of
$100
each
(in
addition
to
the
5,000
preference
shares
which
the
Syndicate
was
to
purchase
and
pay
for
in
eash,
$500,000),
$2,759,000
of
the
Company’s
six
per
cent
twenty-year
bonds,
and
50,000
of
the
Company’s
fully
paid-up
and
non-assessable
common
shares.
The
offer
of
the
Syndicate
was
accepted
and
in
due
course
carried
out.
Apparently
the
$500,000
which
the
Syndicate
agreed
to
pay
to
the
Company
was
treated
as
part
of
the
consideration
for
the
50,000
common
shares
of
the
Company
to
be
allotted
and
delivered
to
the
Syndicate.
It
was
so
treated
in
the
accounting
of
the
Company,
and
so
described
to
me
by
counsel
on
the
hearing
of
the
appeals.
Whether
that
view
is
in
conformity
with
the
agreement
between
the
Syndicate
and
the
Company
is
doubtful,
but
that
is
of
little
consequence,
because,
in
any
event,
the
Syndicate
was
to
receive,
in
addition
to
the
bonds
and
preference
shares
mentioned,
the
Company’s
total
issue
of
common
shares,
fully
paid
up
and
non-assessable,
in
consideration
for
the
shares
in
the
four
old
companies
to
be
sold
and
transferred
to
the
Company,
and
the
total
issue
of
the
Company’s
common
shares
was
transferred
to
the
Syndicate
or
its
nominees.
When
the
agreement
between
the
Syndicate
and
the
Company
had
been
fully
consummated
the
shareholders
of
the
old
companies
held
the
bulk
of
the
Company’s
senior
securities,
and
the
members
of
the
Syndicate
all
the
shares
of
its
capital
stock.
Thereafter
the
Company
acquired
from
time
to
time
the
balance
of
the
outstanding
shares
of
the
four
textile
companies.
Complete
ownership
of
all
the
shares
of
the
Montmorency
Cotton
Mills
Company
Ltd.,
and
the
Colonial
Bleaching
&
Printing
Company
Ltd.
was
acquired
by
March
31,
1906,
of
the
Merchants
Cotton
Company
Ltd.
by
December
31,
1912,
and
of
the
Dominion
Cotton
Mills
Company
Ltd.
by
December
22,
1916.
By
January
1,
1915,
the
Company
had
acquired
98
per
cent
of
the
issued
shares
of
the
Dominion
Cotton
Mills
Company
Ltd.,
and
the
remaining
two
per
cent
was
acquired
by
December
22,
1916.
It
was
a
term
of
the
agreement
between
the
Syndicate
and
the
Company
that
if
the
former
transferred
to
the
latter
a
larger
amount
of
the
shares
in
each
or
any
of
the
four
textile
companies
than
that
stipulated
in
the
offer
of
the
Syndicate,
the
Syndicate
was
entitled
to
receive
an
additional
amount
of
the
bonds
and
preferred
stock
of
the
Company,
proportionate
to
the
additional
number
of
shares
so
transferred
by
the
Syndicate.
As
the
complete
ownership
of
the
shares
of
each
of
the
four
old
companies
was
acquired,
the
assets
and
liabilities
were
taken
into
the
accounts
of
the
Dominion
Textile
Company
Ltd.
at
the
amounts
in
which
they
were
formerly
carried
in
the
accounts
of
the
subsidiary
company.
From
an
exhibit
put
in
evidence
on
behalf
of
the
Minister
it
would
appear
that
in
1904
the
financial
position
of
the
four
textile
companies
mentioned
was
not
very
satisfactory.
While
the
four
companies
showed
a
combined
surplus
of
$932,831.72,
and
a
combined
net
worth
of
capital
and
surplus
amounting
to
$6,770,631.72,
yet
the
net
working
capital
position
showed
a
deficit
of
some
$108,000,
they
were
each
heavily
indebted
to
the
banks,
and
apparently
an
attempt
to
bring
in
fresh
capital
had
proven
unsuccessful.
The
earnings
and
dividend
record
of
the
four
companies
was
not
an
encouraging
one.
The
Dominion
Cotton
Mills
Company
had
paid
no
dividend
since
1902,
the
Merchants
Cotton
Company
none
for
several
years,
the
Montmorency
Cotton
Company
only
one
payment
of
1
per
cent
since
1901,
and
the
Colonial
Bleaching
&
Printing
Company
only
one
payment
of
6
per
cent
since
its
incorporation
in
1899.
During
the
calendar
year
1904
the
Dominion
Cotton
Mills
Company
had
operated
for
ten
months
of
its
fiscal
year,
as
I
understand
it,
at
a
loss
of
$164,000
in
round
figures;
the
Merchants
Cotton
Company
at
a
loss
of
$277,000
during
twelve
months
of
operation
;
the
Montmorency
Cotton
Company
at
a
loss
of
$148,000
during
five
months’
operation;
and
the
Colonial
Bleaching
&
Printing
Company
at
a
profit
of
$477
during
a
period
of
nine
months’
operation.
As
of
March
31,
1905,
the
combined
fixed
assets
of
the
four
companies
were
carried
in
the
several
balance
sheets
at
$10,892,706.17,
their
combined
bonded
indebtedness
was
$4,013,660,
and
their
combined
issued
capital
stock
was
$5,837,800.
The
Company,
having
acquired
the
control
of
each
of
the
four
old
companies,
through
a
holding
of
a
majority
of
shares
in
each
of
them,
went
into
operation
in
April,
1905.
It
had
control
of
over
$10,000,000
worth
of
land,
buildings
and
machinery,
other
assets
in
a
substantial
amount,
and
it
had
in
its
treasury
a
working
capital
of
$1,000,000
in
cash
received
from
the
Syndicate
;
that
is
to
say,
$500,000
from
the
sale
to
the
Syndicate
of
5,000
preference
shares,
and
$500,000
paid
the
Company
in
cash
by
the
Syndicate
for
the
consideration
I
have
already
mentioned
and
explained.
For
the
fiscal
year
ending
March
31,
1915,
the
nearest
accounting
period
to
January
1,
1915,
when
it
became
necessary
to
estimate
the
value
of
the
shares
of
the
capital
stock
of
the
Company
under
the
provisions
of
The
Business
Profits
Act,
as
I
shall
later
explain,
the
balance
sheet
of
the
Company
showed
the
total
assets
at
$15,276,538.84,
which
included
$10,775,941.40
for
‘‘land,
buildings,
machinery,
stock
of
the
Dominion
Cotton
Mills
Company,
and
good
will”;
$2,295,801.40
for
raw
cotton,
stock
manufactured
and
in
process
of
manufacture,
and
$2,239,795.80
in
open
accounts,
cash
on
hand
and
supplies,
etc.,
and
there
was
to
the
credit
of
profit
and
loss
account
$881,926.30,
after
payment
of
interest
on
bonds,
dividends
on
preference
stock,
and
a
dividend
of
six
per
cent
on
the
common
stock.
The
Company
at
that
date
being
in
possession
of
but
98
per
cent
of
the
capital
stock
of
the
Dominion
Cotton
Mills
Company,
a
minority
interest
of
two
per
cent
having
refused
to
exchange
their
shares
of
the
capital
stock
of
that
corporation
for
the
securities
of
the
Company,
the
Company
was
obliged
to
put
through
an
arrangement
whereby
it
leased
the
mills
of
the
Dominion
Cotton
Mills
Company
for
operating
purposes,
until
such
time
as
all
the
shares
therein
were
surrendered.
It
was
for
this
reason
that
the
Company’s
balance
sheet
for
that
year
was
obliged
to
reflect
this
situation
by
including
with
land,
buildings
and
machinery,
the
shares
of
the
capital
stock
of
the
Dominion
Cotton
Mills
Company
acquired
and
held
by
it
on
the
asset
side
of
the
balance
sheet.
The
evidence
would
seem
to
indicate
that
the
Company
gave
a
book
value
of
approximately
$2,228,000
to
"‘good
will.”
At
this
time
the
outstanding
bond
issue
of
the
Company
(including
a
bond
issue
of
the
Montmorency
Cotton
Mills
Company)
was
$3,697,775,
and
its
issue
of
preferred
stock
was
$1,925,975.
The
principal
issues
to
be
decided
here
arise
under
the
provisions
of
the
Business
Profits
Act.
It
will
be
necessary
now
to
refer
to
the
material
provisions
of
that
Act
which
imposed
a
tax
upon
the
profits
earned
in
any
business,
in
excess
of
seven
per
cent
per
annum
upon
the
capital
employed
in
that
business.
While
the
Business
Profits
Act
was
enacted
in
May
of
1916
the
first
accounting
period
thereunder
began
on
January
1,
1915.
Section
3
provided
that
:
There
shall
be
levied
and
paid
to
His
Majesty
a
tax
of
twenty-five
per
centum
of
the
amount
by
which
the
profits
earned
in
any
business
exceeded,
in
the
case
of
a
business
owned
by
an
incorporated
company,
the
rate
of
seven
per
centum
per
annum,
and,
in
the
case
of
a
business
owned
by
any
other
person,
the
rate
of
ten
per
centum
per
annum
upon
the
capital
employed
in
such
business.
Such
tax
shall
be
levied
against
and
paid
by
the
person
owning
such
business
for
each
and
every
accounting
period
ending
after
the
thirty-first
day
of
December,
one
thousand
nine
hundred
and
fourteen.
Sec.
3
was
amended
by
Chap.
6
of
the
Statutes
of
Canada,
1917,
so
as
to
provide
that
where
the
profits
exceeded
fifteen
per
centum
per
annum,
the
tax
was
to
be
fifty
per
centum
with
respect
to
all
profits
in
excess
of
the
said
fifteen
per
centum
but
not
exceeding
twenty
per
centum
per
annum,
and
where
the
profits
exceeded
twenty
per
centum
per
annum
the
tax
was
to
be
seventy-five
per
centum
with
respect
to
all
profits
in
excess
of
the
said
twenty
per
centum.
Sec.
3
of
the
Act
ceased
to
be
in
force
on
December
31,
1920,
and
to
this
I
shall
have
occasion
to
refer
later.
Sec.
7
relates
to
the
matter
of
capital
and
reserves
and
ss.
(1),
(3)
and
(4)
are
of
importance
here,
and,
as
amended,
by
Chapter
6
of
the
Statutes
of
Canada,
1917,
and
Chap.
10
of
the
Statutes
of
Canada,
1918,
read
thus:
1.
For
the
purpose
of
this
Act
the
capital
employed
in
the
business
of
an
incorporated
company
having
its
head
office
or
other
principal
place
of
business
in
Canada
shall
be
the
amount
paid
up
on
its
capital
stock.
*
*
*
*
3.
For
the
purposes
of
this
Act
the
amount
paid
up
on
the
capital
stock
of
a
company
shall
be
the
amount
paid
up
in
cash.
Where
stock
was
issued
before
the
first
day
of
January,
one
thousand
nine
hundred
and
fifteen
for
any
consideration
other
than
cash,
the
fair
value
of
such
stock
on
such
date
shall
be
deemed
to
be
the
amount
paid
up
on
such
stock;
and
where
stock
has
been
issued
since
the
said
first
day
of
January
for
any
consideration
other
than
cash,
the
fair
value
of
the
stock
at
the
date
of
its
issue
shall
be
deemed
to
be
the
amount
paid
up
on
such
stock.
In
estimating
the
value
of
stock
issued
for
any
consideration
other
than
cash,
regard
shall
be
had
to
the
value
of
the
assets,
real
and
personal,
movable
and
immovable,
and
to
the
liabilities
of
the
Company
at
the
date
as
of
which
such
value
is
to
be
determined.
In
no
case
shall
the
value
of
the
stock
be
fixed
at
an
amount
exceeding
the
par
value
of
such
stock.
4.
For
the
purposes
of
this
Act,
the
actual
unimpaired
reserve,
rest
or
accumulated
profits,
held
at
the
commencement
of
an
accounting
period
by
an
incorporated
company,
shall
be
included
as
part
of
its
capital
as
long
as
it
is
held
and
used
by
the
company
as
capital,
and
dividends
paid
during
an
accounting
period
shall
be
considered
as
a
reduction
of
unimpaired
reserve,
rest
or
accumulated
profits.
Sec.
7,
as
amended,
makes
it
clear
that
"‘the
actual
unimpaired
reserve,
rest
or
accumulated
profits,
held
at
the
commencement
of
an
accounting
period
*
*
*
‘
‘
shall
be
included
as
part
of
the
capital
of
an
incorporated
company
as
long
as
it
is
held
and
used
by
the
company
as
capital,
but
any
dividend
paid
during
an
accounting
period
shall
be
considered
as
a
reduction
of
unimpaired
reserve,
rest
or
accumulated
profits.
This
section
required,
it
will
be
observed,
that
the
common
shares
of
the
Company
be
valued
as
of
January
1,
1915,
the
beginning
of
the
first
accounting
period
under
the
Business
Profits
Act,
because
such
shares
were
issued
for
a
consideration
other
than
cash.
That
valuation
was
necessary
in
order
to
determine
precisely
the
amount
of
capital
employed
in
the
business
of
the
Company.
See.
10
of
the
Act
required
every
person
liable
to
taxation
thereunder
to
make
a
return,
on
or
before
the
first
day
of
July
in
each
year,
to
the
Minister,
in
the
form
prescribed,
for
each
accounting
period
for
which
he
was
liable
to
taxation.
Sec.
11
empowered
the
Minister
to
require
a
further
return,
or
additional
information,
or
the
production
of
account
books,
invoices,
statements,
etc.,
if
he
so
desired.
Sec.
13
required
the
Minister,
on
or
before
the
first
day
of
September
in
each
year
to
determine
the
amount
payable
for
the
tax,
and
to
send
by
registered
mail
a
notice
of
assessment
to
the
taxpayer
notifying
him
of
the
amount
payable
for
the
tax.
Sec.
13
(3)
as
originally
enacted
provided
that
"‘any
person
liable
to
pay
the
tax
shall
continue
to
be
so
liable
for
the
period
of
three
years
from
the
time
at
which
such
tax
would
have
been
payable.
‘‘
This
subsection
as
amended
by
Chap.
34
of
the
Statutes
of
Canada,
1923,
reads
as
follows
:
Any
person
liable
to
pay
the
tax
shall
continue
to
be
so
liable
and
in
case
any
person
so
liable
shall
fail
to
make
a
return
as
required
by
this
Act,
or
shall
make
an
incorrect
or
false
return,
and
does
not
pay
the
tax
in
whole
or
in
part,
the
Minister
may
at
any
time
assess
such
person
for
the
tax,
or
such
portion
thereof
as
he
may
be
liable
to
pay,
and
may
prescribe
the
time
within
which
any
appeals
may
be
made
under
the
provisions
of
this
Act
from
the
assessment
or
from
the
decision
of
the
Board.
Sec.
9
of
the
Act
provided
that
the
Governor
in
Council
might
appoint
a
Board
of
Referees,
and
s.
15
provided
that
this
Board
should
act
as
a
Court
of
Revision,
and
should
hear
and
determine
any
appeal
made
by
a
taxpayer
under
the
Act.
Sec.
16
provided
that
:
Any
person
objecting
to
the
amount
at
which
he
is
assessed,
or
as
having
been
wrongfully
assessed,
may,
personally
or
by
his
agent,
within
twenty
days
after
the
date
of
mailing
of
the
notice
of
assessment,
as
provided
in
section
thirteen
of
this
Act,
give
notice
in
writing
to
the
Minister
in
form
K
of
the
schedule
to
this
Act
that
he
considers
himself
aggrieved
for
either
of
the
causes
aforesaid,
otherwise
such
person’s
right
to
appeal
shall
cease
and
the
assessment
made
shall
stand
and
be
valid
and
binding
upon
all
parties
concerned
notwithstanding
any
defect,
error
or
omission
that
may
have
been
made
therein,
or
in
any
proceeding
required
by
this
Act
or
any
regulation
hereunder:
Provided,
however,
that
the
Minister,
either
before
or
after
the
expiry
of
the
said
twenty
days,
may
give
a
taxpayer
further
time
in
which
to
appeal.
No
appeals,
during
the
accounting
periods
in
question,
were
made
by
the
Company.
One
of
the
questions
to
be
decided
here
relates
to
the
matter
of
the
amount
of
capital
employed
by
the
Company
in
its
business
at
the
beginning
of
each
accounting
period
during
which
the
Business
Profits
Act
was
in
foree,
and
particularly
at
the
beginning
of
the
first
accounting
period,
March
31,
1914,
to
March
31,
1915.
If
this
is
correctly
determined
as
of
the
beginning
of
the
first
accounting
period,
no
difficulty
should
arise
in
the
following
periods
as
any
alterations
would
involve
only
subtractions
for
deductions
in
the
capital
employed,
or
additions
on
account
of
surpluses
earned
and
reinvested
in
the
business,
less
of
course
any
dividends
paid
out
of
such
surpluses.
The
determination
of
the
quantum
of
capital
employed
in
a
business,
under
the
Business
Profits
Act,
was
always
of
the
greatest
importance
to
the
taxpayer
because
it
was
to
his
interest
that
the
capital
employed
should
be
computed
as
high
as
possible,
for
the
reason
that
the
capital
employed
was
exempt
from
the
business
profits
tax
to
the
extent
of
seven
per
cent
thereon,
annually.
In
computing
the
capital
employed
by
the
Company
for
the
first
accounting
period,
from
March
31,
1914,
to
March
31,
1915,
it
became
necessary
under
the
provisions
of
the
Business
Profits
Act,
to
estimate
the
fair
value
of
the
shares
of
the
Company’s
common
stock
as
of
January
1,
1915,
because
they
had
been
issued
in
1905
for
a
consideration
other
than
cash.
It
was
also
necessary
to
ascertain
the
amount
of
any
"‘actual
unimpaired
reserve,
rest
or
accumulated
profits’’
reinvested
in
the
business
because,
under
s.
7
(4)
of
the
Act,
the
same
was
to
be
included
as
part
of
the
Company’s
capital.
And
it
is
the
question
of
the
quantum
of
capital
employed
by
the
Company
in
its
business,
in
its
first
accounting
period,
that
I
am
about
to
discuss,
and
this
involves
a
consideration
of
(1)
the
fair
value
of
the
Company’s
issued
common
stock
(there
being
no
question
as
to
the
preference
stock),
the
shares
of
which
the
Company
claims
should
be
valued
at
par,
and
(2)
the
quantum
of
actual
unimpaired
reserves
and
accumulated
profits
used
in
the
Company’s
business,
all
as
of
the
beginning
of
its
first
accounting
period.
The
amount
of
the
unimpaired
reserves
and
accumulated
profits,
the
Company
claims,
should
include
the
surplus
to
the
credit
of
the
profit
and
loss
account
on
March
31,
1914,
which,
it
is
claimed,
was
in
the
sum
of
$829,379.65;
the
amount
of
$500,000
put
to
a
special
reserve,
‘‘raw
cotton
reserves,’’
some
years
prior
to
the
introduction
of
the
Business
Profits
Act;
and
the
sum
of
$759,822.79
which
emerges
as
an
addition
to
the
Company’s
inventory
values
as
of
March
31,
1914,
resulting
from
the
revaluation
of
such
inventories
on
the
basis
now
set
forth
in
the
agreement
between
the
parties,
which
addition
would
increase
the
amount
of
the
unimpaired
accumulated
profits
employed
as
capital
in
the
business
for
the
accounting
period
ending
March
31,
1915,
and
which
inventory
readjustment
is
to
be
found
in
the
Minister’s
assessment
made
in
1987,
in
practically
the
same
amount
as
that
claimed
by
the
Company.
Now,
all
these
items
are
to
be
considered
in
ascertaining
the
quantum
of
capital
employed
in
the
first‘accounting
period,
and
the
Company
claims
that
these
amounts
should
now
be
allowed
if
the
assessments
made
upon
it
throughout
the
years
mentioned,
and
paid,
are
to
be
opened
up
and
readjusted.
When
the
Company
filed
its
first
return,
for
the
period
ending
March
31,
1915,
under
the
Business
Profits
Act,
it
showed,
in
the
form
prescribed,
its
paid-up
capital
stock
to
be
as
follows:
preferred
stock
$1,925,975,
common
stock
$5,000,000,
and
it
returned
its
unimpaired
reserve,
rest
or
accumulated
profits
at
$1,381,926.30,
making
a
total
of
$8.-
307,901.30
for
its
paid-up
capital
stock
and
its
unimpaired
reserves
and
accumulated
profits.
It
will
be
seen
therefore
that
the
Company
then
valued
its
shares
of
common
stock
at
par,
$100
each.
When
the
Company
was
assessed
for
this
period
the
paid-
up
capital
stock
was
computed
at
$5,675,975,
this
sum
being
reached
by
valuing
the
issued
preference
shares
at
par,
and
the
common
shares
at
$75
per
share,
and
at
that
it
apparently
remained
until
the
assessment
made
in
1937.
Notwithstanding
that
the
Business
Profits
Act
plainly
enacted
that
the
unimpaired
accumulated
profits
should
be
included
as
part
of
the
Company’s
capital,
this
seems
to
have
been
entirely
disregarded
by
the
taxing
authorities
when
the
assessment
for
the
1915
period
came
to
be
made.
Any
conjecture
as
to
why
this
was
permitted
to
occur
without
serious
controversy
would
be
unprofitable.
So
therefore
there
is
now
to
be
considered
whether
the
value
of
the
shares
of
the
Company’s
common
stock
should
be
increased
to
their
par
value
as
claimed,
and
whether
the
surplus
account,
the
raw
cotton
reserve,
and
the
additional
reserve
created
by
the
inventory
adjustments,
should
be
included
in
the
unimpaired
accumulated
profits
and*
therefore
included
as
part
of
the
Company
’s
capital,
all
as
of
the
beginning
of
the
first
accounting
period,
April
1,
1914.
I
come
now
to
the
question
as
to
what
was
the
fair
value
to
be
given
the
fifty
thousand
common
shares
of
the
Company
as
of
January
1,
1915.
As
already
stated,
the
fair
value
of
the
common
shares
was
estimated—arbitrarily,
I
think,
in
the
first
assessment
at
$75
per
share,
the
difference
between
that
amount
and
the
par
value
being
$1,250,000,
which
represents
the
amount
in
dispute
in
respect
of
this
point.
The
Act
provided
that*the
fair
value
of
any
issued
capital
stock,
on
January
1,
1915,
should
be
deemed
to
be
the
amount
paid
up
on
such‘stock,
if
the
same
had
been
issued
for
a
consideration
other
than
cash,
before
that
date.
In
estimating
the
value
of
capital
stock
issued
for
a
consideration
other
than
cash,
the
Act
provided
that
regard
should
be
had
‘‘to
the
value
of
the
assets,
real
and
personal,
movable
and
immovable,
and
to
the
liabilities
of
the
Company,’’
but
that
would
not
exclude
any
other
consideration
properly
applicable
to
that
valuation.
The
Company
was
required
to
state
separately
in
its
return,
the
amount
of
its
unimpaired
reserves
and
accumulated
profits,
which
it
did,
as
I
have
already
stated.
All
that
the
first
assessment
reveals
is
that
the
value
of
the
capital
stock
was
fixed
at
$5,675,975,
which
amount
was
made
up
by
valuing
the
preference
shares
then
issued
at
par,
and
the
common
shares
at
$75
per
share.
There
is
nothing
to
indicate
therein
that
in
reaching
the
value
of
the
capital
stock
for
taxation
purposes
the
amount
of
any
unimpaired
accumulated
profits
was
considered
at
all.
It
was
the
contention
of
the
Company
that
on
the
basis
of
net
asset
value,
including
a
certain
allowance
for
goodwill,
and
a
98
per
cent
interest
in
the
capital
stock
of
the
Dominion
Cotton
Mills
Company,
less
the
bonded
indebtedness,
all
other
liabilities,
and
the
preference
shares,
the
fair
value
of
the
common
shares
of
the
Company,
on
January
1,
1915,
would
be
their
par
value,
$100
per
share,
beyond
which
they
could
not
be
valued.
The
Company’s
valuation
of
its
common
shares,
on
this
basis,
was
put
before
me
in
the
form
following,
and
as
of
January
1,
1915:
Fixed
assets
and
shares
in
the
Dominion
Cotton
Mills
Ld.
(representing
substantially
the
mills
|
and
equipment
owned
by
that
Company)
|
$8,547,773.00
|
|
Goodwill
|
2,228,168.00
|
|
Other
assets,
including
inventories
valued
at
not
|
|
|
more
than
market
value
|
5,787,943.00
|
|
Gross
assets
|
$16,563,884.00
|
|
Deduct,
liabilities
|
7,468,637.00
|
|
Net
assets
|
$9,095,247.00
|
|
Deduct,
preferred
shares
|
1,925,975.00
|
|
Net
value
common
shares
|
$7,169,272.00
|
|
Net
value
per
share
|
143.40
|
I
might
add
that
early
in
1915
the
fixed
assets
of
the
four
textile
companies
ultimately
acquired
were
appraised
at
$10,872,133.68
by
the
Canadian
Appraisal
Company,
and
this
included
only
lands,
buildings,
machinery
and
mill
equipment,
allowance
being
made
for
depreciation
and
obsolescence,
but
nothing
for
goodwill.
It
was
also
the
submission
of
the
Company,
that,
on
the
basis
of
net
asset
value,
but
excluding
any
allowance
for
the
intangible
asset
of
goodwill,
which
would
amount
to
about
$44
per
share,
the
common
shares
would
have
a
value
only
slightly
below
par,
about
$99
per
share.
I
refrain
from
engaging
in
a
discussion
of
"goodwill,''
always
difficult
of
valuation,
particularly
where
there
was
no
specific
sale
and
purchase
of
‘‘goodwill.’’
In
this
case
goodwill
arises
from
a
voluntary
writing
up
of
its
capital
by
the
Company
above
the
amount
which
it
gave
for
the
assets
acquired.
However,
I
am
far
from
saying
that
the
capital
assets
of
the
Company
were
not
of
a
greater
value
on
January
1,
1915,
than
when
they
were
acquired
from
the
four
old
textile
companies,
including
the
98
per
cent
interest
acquired
in
the
capital
stock
of
the
Dominion
Cotton
Mills
Company
at
that
date,
but
in
my
view
of
the
matter
it
is
not
necessary
to
attach
any
definite
value
to
any
"‘goodwill,’’
in
disposing
of
the
point
presently
under
discussion.
It
will
be
proper
to
look
at
the
dividend
record
of
the
common
stock
of
the
company.
The
first
common
stock
dividend
was
paid
in
the
fiseal
year
ended
March
31,
1908,
being
at
the
rate
of
five
per
cent.
This
rate
remained
in
effect
for
the
succeeding
four
years.
In
1913
the
common
dividend
was
increased
to
51
per
cent,
and
to
6
per
cent
in
1914
where
it
remained
during
the
war
years.
Interest
payments
on
the
bonds
and
preferred
stock
were
met
during
the
first
and
subsequent
years.
In
all
the
years,
practically
from
the
beginning
of
the
Company’s
career,
substantial
amounts
of
surplus
earnings
were
held
and
used
in
the
business
to
build
up
reserves,
the
Company
observing
the
practice
of
most
industrial
managements
in
paying
out
in
dividends
only
a
part
of
earnings
realized,
and
reinvesting
the
balance
in
the
expansion
or
improvements
of
productive
facilities,
or
for
other
purposes
of
the
Company.
The
common
shares
were
quoted
on
the
Montreal
Stock
Exchange
where
they
were
listed,
at
an
average
price
of
$82.75
throughout
the
year
1913
and
quotations
reached
as
high
as
$89.50
per
share
in
one
week
of
that
year.
In
the
year
1914,
from
January
1
to
July
28,
the
average
quotation
was
$76.75.
On
the
latter
date
the
Montreal
Stock
Exchange
closed
for
business
and
did
not
reopen
until
January
25,
1915.
It
is
possible,
if
not
probable,
that
the
war
would
have
a
disturbing
effect
on
the
market
quotations
of
many
listed
shares,
including
that
of
the
Company.
In
any
event
stock
exchange
quotations
would
not
necessarily
afford
a
reliable
index
of
the
fair
value
of
the
common
stock
of
the
Company,
as
of
January
1,
1915.
In
my
opinion
the
fair
value
of
the
common
shares
on
January
1,
1915,
was
their
par
value.
The
fact
that
substantial
dividends
were
paid
on
such
shares
for
the
fiscal
years
1908
to
1915,
both
inclusive,
is,
I
think,
alone
pretty
conclusive
of
the
matter,
and
the
net
annual
earnings
were
not
only
ample
to
pay
such
dividends
but
they
were
sufficient
to
enable
the
Company
to
add
substantially
to
the
credit
of
the
profit
and
loss
account,
each
year.
It
was
not,
I
think,
intended
by
the
Act
that
the
estimated
fair
value
of
the
common
shares
should
be
determined
on
any
narrow
basis,
or
that
the
same
should
be
ascertained
by
a
meticulous
appraisal
of
gross
and
net
assets.
That
stock
was
issued
as
fully
paid
up,
for
what
the
Syndicate
would
at
the
time
probably
regard
as
a
substantial
consideration,
in
a
transaction
that
could
not
be
said
to
have
been
fictitious.
I
would
interpret
the
Act
as
meaning
that
the
value
of
the
stock
issued
for
a
consideration
other
than
cash
should
be
estimated
in
a
practical
manner,
with
due
regard
to
all
the
circumstances
attending
its
issue,
and
on
a
basis
not
unfair,
and
perhaps
even
generous,
to
the
taxpayer.
If
common
shares
issued
as
fully
paid
up
are
supported
by
net
assets
approximating
their
par
value,
and
they
have
paid
substantial
dividends
for
eight
consecutive
years
and
at
the
same
time
leaving
a
substantial
sum
to
the
credit
of
profit
and
loss,
as
was
the
case
here,
that
would
appear
to
me
to
afford
ample
ground
for
valuing
such
shares
at
their
par
value
for
the
purpose
of
ascertaining
the
amount
of
capital
employed
in
a
business,
under
the
provisions
of
the
taxing
statute
in
question.
My
conclusion
is
that
the
common
shares
of
the
Company
should
have
been
valued
at
par
from
the
beginning
of
the
first
accounting
period
and
onwards,
under
the
Business
Profits
Act.
The
other
three
amounts
which
I
have
already
mentioned
as
being
claimed
by
the
Company
as
proper
additions
to
its
"‘un-
impaired
reserve,
rest
or
accumulated
profits,’’
as
from
the
beginning
of
the
first
accounting
period
under
the
business
Profits
Act,
and
therefore
to
"‘be
included
as
part
of
its
capital
‘
under
s.
7
(4)
of
the
Business
Profits
Act
for
the
same
period,
may,
I
think,
be
disposed
of
in
brief
terms.
The
Company
contends
that
if
the
original
assessments
made
upon
it
under
the
Business
Profits
Act
may
now
be
reopened
and
revised
at
all,
then
these
amounts
are
now
properly
open
for
adjudication,
and
I
see
no
successful
answer
to
that
contention.
First,
as
to
the
amount
of
$829,379.65.
That
amount
was
the
balance
at
the
credit
of
the
audited
and
verified
profit
and
loss
account
on
March
31,
1914,
and
as
such
it
appears
in
the
annual
statement
of
the
Company
for
the
year
ending
March
31,
1915,
but
the
same
was
not
included
as
capital
in
the
first
accounting
period,
in
either
the
original
or
the
revised
assessment.
There
is
no
suggestion
that
this
amount
did
not
represent
unimpaired
accumulated
profits
used
in
the
business.
I
cannot
perceive
of
any
sound
reason
why
this
amount
should
not
have
been
included
in
the
computation
of
the
Company’s
capital,
in
the
accounting
period
beginning
March
31,
1914,
and
ending
March
31,
1915.
The
Act,
in
the
plainest
terms
possible,
directs
that
this
should
be
done,
and
I
think
it
must
now
be
done.
And
the
same
thing
is
to
be
said
regarding
the
second
amount
of
$500,000,
an
amount
put
to
a
special
reserve
apparently
some
years
before
the
Business
Profits
Act
was
enacted.
It
was
an
unimpaired
reserve,
and
it
was
not
suggested
that
at
the
beginning
of
the
first
accounting
period
and
onwards
that
this
amount
was
not
used
in
the
business
of
the
Company;
that
amount
must
now,
I
think,
be
included
as
part
of
the
capital
of
the
Company,
as
at
the
beginning
of
the
first
accounting
period,
for
the
purposes
of
the
Business
Profits
Act.
There
is
left,
then,
for
consideration
the
third
amount,
approximately
$759,822.79.
The
Minister
having
adjusted,
in
the
1937
assessments,
the
amount
allowed
as
capital
employed
by
the
Company
in
the
original
assessment
under
the
Business
Profits
Act,
by
adding
approximately
the
sum
just
mentioned
to
the
inventory
values
in
the
first
accounting
period,
and
which
amount
had
its
genesis
in
the
adoption
of
the
method
of
valuing
the
inventories
now
embodied
in
the
agreement
between
the
parties,
it
is
now
claimed
that
this
amount
must
be
included
in
the
capital
employed
in
all
the
accounting
periods
under
the
Business
Profits
Act.
The
effect
of
the
stipulated
method
of
valuing
the
inventories
of
the
Company
did,
it
is
agreed,
result
in
an
addition
to
the
unimpaired
accumulated
profits,
of
the
Company,
as
at
the
beginning
of
the
first
accounting
period
under
the
Business
Profits
Act,
and
it
is
claimed
that
this
amount
must
now
be
considered
as
part
of
the
Company’s
capital
for
the
purposes
of
that
Act,
and
with
that
I
agree.
The
three
amounts
mentioned
must
therefore,
in
my
opinion,
be
considered
as
part
of
the
capital
of
the
Company
for
the
purposes
of
the
Business
Profits
Act,
and
these
amounts
cannot
be
extinguished
or
diminished
by
apportioning
any
of
them,
or
portions
of
them,
towards
the
valuation
of
the
preference
or
common
shares,
as
is
suggested
to
have
been
done
in
the
second
and
subsequent
assessments
under
the
Business
Profits
Act;
this,
in
my
opinion,
could
only
be
done
in
contravention
of
the
express
terms
of
the
Act.
There
is
no
suggestion
of
this
having
been
done
in
the
first
assessment,
and
it
may
in
fact
be
said
that
it
was
not
done.
The
first
and
last
amounts
above
mentioned
may
not
be
strictly
accurate
though
the
first
would
not
appear
to
be
open
to
question;
the
last-mentioned
amount
closely
approximates
the
amount
mentioned
in
the
assessment
of
1937
as
being
in
addition
to
the
inventory
values
in
consequence
of
the
new
method
adopted
for
valuing
the
same.
In
any
event
there
would
not
appear
to
be
any
reason
why
the
parties
should
fail
to
agree
upon
the
figures
of
the
last
amount,
and
the
first
as
well
if
it
should
be
in
dispute.
Should
the
parties
fail
to
agree
upon
those
two
amounts
they
will
be
treated
as
falling
within
the
Reference
to
the
Registrar
already
mentioned,
and
what
I
there
said
as
to
costs
will
apply
to
those
matters.
There
is
another
important
question
for
decision.
For
the
accounting
period
of
1919,
under
the
Business
Profits
Act,
the
Company
put
to
reserve
out
of
profits
the
sum
of
$500,000,
referred
to
as
a
raw
cotton
reserve,
in
view
of
apprehended
inventory
losses
chiefly
in
the
next
accounting
period,
and
this
was
an
addition
to
the
raw
cotton
reserve
of
$500,000
which
I
have
already
mentioned
and
discussed.
It
is
not,
of
course,
contended
that
the
Company
might
not
do
this.
It
is
always
recognized
that
a
prudent
commercial
man
may
put
part
of
his
profits
made
in
one
year
to
reserve,
and
carry
forward
that
reserve
to
the
next
year,
in
order
to
provide
against
an
expected
or
inevitable
loss
which
he
foresees
will
fall
upon
his
business
during
the
next
year.
The
process
is
a
familiar
one.
In
practice,
a
raw
cotton
reserve,
or
any
reserve,
would
be
set
up
by
a
process
of
deduction
from
the
inventory
values,
which
would
be
reflected
in
the
net
profits
for
the
accounting
period
concerned,
the
same
being
diminished
by
the
amount
put
to
reserve,
but
if
that
reserve
were
held
and
used
in
the
business
it
would
form
part
of
the
unimpaired
reserves
or
accumulated
profits
under
the
Business
Profits
Act,
and
would
for
taxation
purposes
be
considered
as
part
of
capital
employed
in
the
business.
The
immediate
reason
for
putting
to
reserve
the
amount
mentioned
here
was
the
imminence
and
almost
certainty
of
a
decline
in
the
Company’s
raw
cotton
inventory
values
in
1920,
the
year
in
which
the
Company
would
normally
make
its
return
for
the
accounting
period
of
1919,
under
the
Business
Profits
Act.
I
do
not
doubt
that
the
Company
was
right
in
considering
that
a
very
substantial
loss
was
inevitable
in
its
cotton
inventories
in
1920.
The
price
of
raw
cotton
was
as
high
as
42
cents
per
pound
in
April,
1920,
and
soon
thereafter
deflation
set
in
and
by
the
month
of
November
of
the
same
year
it
had
fallen
to
about
17
cents.
This
alone
involved
an
inventory
loss
of
about
two
and
a
half
million
dollars
to
the
Company.
In
April,
1919,
the
Company
commenced
reducing
the
selling
price
of
its
manufactured
goods,
and
it
also
felt
obliged
to
reduce
the
invoice
prices
of
goods
already
sold
and
delivered,
and,
I
think,
the
prices
of
goods
under
contract
for
future
delivery.
This
was
necessitated
by
the
disturbed
state
of
the
raw
cotton
market.
In
point
of
fact
this
severe
decline
in
cotton
inventory
values
occurred
before
the
Company
had
been
assessed
in
1920
for
the
1919
period,
but
after
it
had
made
its
return
for
the
1919
period.
Now
the
problem
here
is
whether
this
reserve,
made
in
view
of
apprehended
future
losses
but
which
had
not
been
suffered
in
the
1919
accounting
period,
can
be
claimed
by
way
of
a
deduction
in
profits
for
the
1919
period.
The
Company
now
claims
that
the
amount
of
this
reserve
was
upon
consideration
allowed
as
a
deduction
in
net
profits
for
the
1919
accounting
period
and
is
reflected
in
the
assessment
made
for
that
period,
and
that
as
the
tax
was
paid
on
the
basis
of
this
assessment
it
cannot
now
be
disturbed.
When:the
Company
made
its
return
for
the
1919
period
its
balance
sheet
for
the
same
period
accompanied
the
return
as
was
required,
but
not
what
is
called
its
"‘trading
account.
‘‘
In
the
preceding
accounting
periods
it
was
the
practice
of
the
taxing
authorities
to
request
of
the
Company
its
trading
account,
some
time
after
the
receipt
of
its
return
and
before
proceeding
to
make
the
assessment;
and
the
officers
of
the
Company
were
aware
that
this
would
be
required
of
them
for
the
1919
period,
and,
as
expected,
a
request
was
made
for
the
trading
account
early
in
November,
1920.
With
this
furnished
the
taxing
authorities
would
then
have
before
them
the
Company’s
return,
its
balance
sheet,
and
its
trading
account,
for
the
1919
period.
The
Company
asserts
that
the
amount
in
question
put
to
reserve
was
orally
explained
to
the
Minister’s
principal
taxing
officers;
that
an
examination
of
the
balance
sheet
and
the
trading
account
would
disclose
it;
that
it
was
by
the
taxing
officers
considered
and
in
due
course
allowed
;
that
the
computation
of
the
assessment
for
the
1919
period
included
the
allowance
of
this
reserve
made
by
the
process
of
a
reduction
in
inventory
values
and
consequently
by
a
deduction
in
profits
for
the
same
amount;
that
the
tax
was
fully
paid
shortly
after
notification
of
the
assessment,
and
that
no
question
was
ever
raised
concerning
the
basis
of
this
assessment
until
1937,
seventeen
years
thereafter.
The
Company
therefore
claims
that
the
assessment
was
made
after
a
compliance
with
all
the
requirements
of
the
statute
on
its
part,
after
a
full
disclosure
of
all
the
relevant
facts
concerning
the
Company’s
computation
of
net
profits
for
the
1919
period,
and
that
the
same
is
now
binding
upon
all
the
parties
concerned
and
is
not
now
open
to
review.
It
is
claimed
on
behalf
of
the
Minister
that
the
amount
in
question
put
to
reserve
was
without
the
knowledge
of
the
Minister
’s
taxing
officers,
without
disclosure
being
made
to
them,
and
that
the
same
was
not
knowingly
allowed
in
calculating
the
assessment;
and
for
such
reasons
it
is
claimed
that
the
revision
of
the
original
assessment
made
in
1937
was
authorized
by
the
Business
Profits
Act,
and
that
it
properly
excluded
the
allowance
of
this
reserve.
This
issue
would
seem
to
be
largely
a
question
of
fact,
and
the
facts
must
therefore
be
carefully
examined.
The
Company’s
balance
sheet
for
the
1919
period
would
not
by
itself
disclose
that
$500,000
had
been
put
to
reserve
but
an
examination
of
that
balance
sheet
along
with
the
trading
account
for
the
same
period,
as
seems
to
have
been
the
usual
practice,
would
do
so.
The
trading
account
is
a
document
showing
on
one
side
the
stock
of
raw
material
and
manufactured
goods
on
hand
at
the
beginning
of
any
period,
the
additions
thereto
during
the
same
period,
and
the
working
expenses
for
the
whole
of
the
period;
on
the
other
side
of
the
trading
account
there
will
be
shown
the
amount
of
goods
and
merchandise
sold
during
the
period,
and
the
amount
of
raw
material,
and
goods
manufactured
or
in
process
of
manufacture,
on
hand
at
the
end
of
the
period.
At
the
top
of
the
left-hand
side
of
the
trading
account
in
question
is
to
be
found
the
value
of
the
stock
of
raw
cotton
and
goods
manufactured
or
in
process
of
manufacture,
on
hand
at
the
beginning
of
the
accounting
period,
and
the
working
expenses
of
the
period.
On
the
right-hand
side
of
the
trading
account
is
to
be
found
the
value
of
goods
and
merchandise
sold
during
the
period,
and
the
value
of
the
stock
of
raw
cotton,
and
goods
manufactured
or
in
process
of
manufacture,
on
hand
at
the
close
of
the
accounting
period.
The
difference
between
both
sides
of
the
trading
account
would
indicate
the
profits
for
the
1919
accounting
period.
On
the
right-hand
side
of
the
trading
account
we
find
the
stock
of
raw
cotton
on
hand
at
the
end
of
the
period
to
be
valued
at
$2,807,754.79.
When
we
turn
to
the
balance
sheet
for
that
period
we
find
the
raw
cotton
was
valued
at
$1,807,-
754.79,
precisely
$1,000,000
less
than
the
value
stated
in
the
trading
account.
This
would
show
that
the
raw
cotton
inventory
had
been
reduced
by
$1,000,000,
that
is,
by
the
addition
of
the
new
reserve
of
$500,000
to
the
old
reserve
of
$500,000
which
was
set
aside
sometime
prior
to
1916,
making
altogether
a
raw
cotton
reserve
of
$1,000,000.
This
addition
to
the
raw
cotton
reserve
would,
I
think,
be
obvious
to
any
person
conversant
with
such
matters,
and
who
would
be
obliged
to
make
an
examination
of
the
balance
sheet
and
trading
account
in
the
course
of
making
the
assessment
in
question.
It
is
difficult
to
believe
that
such
a
person
could
fail
to
observe
this.
I
should
point
out
that
the
Company
in
its
tax
return
for
1919
was
claiming
as
a
working
expense
the
sum
of
$400,000
expended
in
the
reconstruction
of
a
dam
at
one
of
the
Company
‘s
mills,
at
Magog,
P.Q.,
which
had
been
swept
away
or
damaged,
and
also
a
reduction
in
its
raw
cotton
inventory
values
in
the
sum
of
$439,943,
which
amount
was
based
on
a
reduction
of
4
cents
per
pound’
in
the
value
of
raw
cotton
on
hand,
as
a
provision
against
possible
shrinkage
in
values.
The
Company
was
therefore
at
this
time
making
three
different
claims
for
consideration
by
the
taxing
authorities,—that
is
to
say,
the
addition
of
$500,000
to
the
raw
cotton
reserve,
an
allowance
of
$400,000
for
expenses
incurred
in
the
restoration
of
the
Magog
Dam,
and
a
reduction
in
its
raw
cotton
inventories
in
the
sum
of
$439,943,
in
making
the
assessment
against
the
Company
for
the
1919
accounting
period.
The
Company’s
officers
were
of
the
view
that
it
would
be
necessary
for
some
one
to
appear
before
the
taxing
officers,
on
behalf
of
the
Company,
in
order
to
explain
and
support
the
three
different
matters
or
claims
referred
to,
and
accordingly
its
General
Manager,
Mr.
Daniels,
and
its
Secretary,
Mr.
Webb,
proceeded
to
Ottawa
in
November,
1920.
The
Company
claims
that
a
conference
then
took
place
between
the
Minister’s
senior
taxing
officers
and
those
two
officers
of
the
Company,
and
it
claims
that
these
three
matters
were
subjects
of
discussion
between
such
parties,
but
without
any
final
conclusion
then
being
reached.
Within
a
few
days
after
such
conference
the
Company
was
notified
in
writing
of
the
assessment
for
the
1919
period.
The
assessment
allowed
a
portion
of
the
claim
in
respect
of
the
Magog
Dam
expenditures;
it
disallowed
the
item
of
$439,000
in
respect
of
the
reduction
in
raw
cotton
inventories,
and
apparently
assented
to
the
action
of
the
Company
in
putting
to
reserve
the
amount
of
$500,000,
which
had
the
effect
of
reducing
the
net
profits
for
the
1919
period
by
that
amount.
The
Company
accepted
the
assessment;
at
least
it
did
not
appeal
therefrom,
and
within
a
week
or
so
the
Company
paid
the
amount
assessed,
and
there
the
matter
stood
unquestioned
until
1937.
There
is
some
evidence
upon
this
point
which
must
be
referred
to.
When
Mr.
Daniels
and
Mr.
Webb
proceeded
to
Ottawa
for
the
purpose
mentioned
they
took
along
with
them
the
trading
account
for
1919,
which
had
been
a
little
earlier
requested
by
the
taxing
authorities,
and
without
which
an
assessment
could
hardly
be
made,
and
they
then
interviewed
Mr.
Breadner,
the
Commissioner
of
Taxation,
and
Mr.
McLaughlin,
the
Chief
Auditor
of
Taxation.
Mr.
Breadner
and
Mr.
Daniels
are
now
both
deceased,
but
Mr.
Webb
appeared
as
a
witness
upon
the
hearing
of
the
appeal,
and
he
testified
that
he
discussed
the
matter
of
the
expenditures
made
in
connection
with
the
Magog
Dam
with
Mr.
McLaughlin
alone,
and
that
the
latter
agreed
to
a
certain
disposition
of
this
item,
subject
however
to
the
approval
of
Mr.
Breadner.
Mr.
Webb
stated
that
with
the
Magog
Dam
item
tentatively
disposed
of,
he
and
Mr.
McLaughlin
proceeded
to
the
office
of
Mr.
Breadner
where
they
found
Mr.
Daniels
discussing
with
Mr.
Breadner
the
matter
of
the
$500,000
reserve,
and
the
item
of
$439,000
pertaining
to
the
reduction
of
4
cents
per
pound
in
the
raw
cotton
inventories.
Mr.
Webb
testified
that
he
heard
Mr.
Daniels
discussing
those
two
items
with
Mr.
Breadner,
and
that
Mr.
Breadner
in
the
end
promised
consideration
would
be
given
the
same,
and
so
these
matters
stood
over
for
further
considéra-
tion.
I
unreservedly
accept
the
evidence
of
Mr.
Webb,
and
I
might
add
that
he,
having
taken
pension
some
years
ago,
is
no
longer
Secretary
of
the
Company.
In
the
end,
as
I
have
already
stated,
when
the
assessment
was
made
the
item
of
$439,000
was
not
allowed.
The
Magog
Dam
item
was
allowed
to
the
extent
of
$200,000,
it
being
agreed
that
a
further
amount
would
be
allowed
in
the
next
accounting
period,
and
no
restoration
of
the
$500,000
reserve
to
the
Company’s
assets,
or
its
net
profits,
for
the
purposes
of
taxation,
was
made
or
in
any
way
suggested.
The
Company
accepted
the
assessment
to
mean
that
the
amount
of
$500,000
put
to
reserve
had,
for
taxation
purposes,
the
approval
of
Mr.
Breadner.
In
the
Company’s
trading
account
for
1919,
which
was
left
with
Mr.
Breadner
or
Mr.
McLaughlin
on
the
occasion
referred
to,
there
is
to
be
found
the
notation
in
pencil:
‘‘Carried
on
Balance
Sheet
at
$1,807,754.79,’’
and
this
notation
was
directed
to
those
figures
in
the
trading
account
which
state
the
value
of
the
stock
of
raw
cotton
on
hand
at
the
end
of
the
1919
period,
namely,
$2,807,754.79.
There
is
also
the
notation:
"Increase
is
caused
by
addition
Cotton
Reserve
$1,000,000,”
which
would
clearly
indicate
that
the
raw
cotton
reserve
had
been
increased
to
$1,000,000,
and
this
would
mean
that
the
raw
cotton
on
hand
at
the
end
of
the
period
was
carried
on
the
balance
sheet
at
$1,000,000
less
than
in
the
trading
account;
the
word
"
4
increase
’
’
in
this
notation
would
indicate
that
there
was
an
addition
of
$500,000
to
the
old
raw
cotton
reserve.
These
notations,
whoever
made
them,
clearly
show
that
the
author
was
aware
of
the
existence
of
a
raw
cotton
reserve
account,
and
the
addition
of
$500,000
to
it
in
the
1919
period,
making
altogether
$1,000,000.
Mr.
Tilley
contended
that
these
notations
were
made
by
Mr.
Mclaughlin
when
the
assessment
for
the
1919
period
was
under
preparation,
and
that
the
same
appeared
to
be
in
the
handwriting
of
Mr.
McLaughlin.
Mr.
Sharp,
presently
Assistant
Chief
Auditor,
thought
that
these
notations
were
made
by
him
at
the
time
the
assessment
revisions
of
1937
were
being
considered,
which,
of
course,
is
quite
possible.
If
these
notations
were
made
by
Mr.
McLaughlin
then
the
contention
made
on
behalf
of
the
Minister
that
the
existence
of
the
reserve
in
question
was
unknown
to
the
taxing
officers,
or
that
it
was
ever
brought
to
their
attention,
would,
in
my
opinion,
fall
to
the
ground.
I
cannot
say
that
the
notations
on
the
1919
trading
account
were
made
by
Mr.
McLaughlin,
in
view
of
the
evidence
of
Mr.
Sharp.
I
cannot
form
any
opinion
worth
while
from
a
comparison
of
the
handwriting
of
Mr.
McLaughlin
and
that
of
Mr.
Sharp,
such
as
there
is
before
me.
Mr.
McLaughlin
was
not
called
at
the
hearing
of
this
appeal,
and
while
he
was
then
no
longer
in
the
service
of
the
National
Revenue
Department,
yet
he
was
available
to
the
Minister
as
a
witness.
Mr.
Tilley
openly
called
my
attention
to
the
fact
that
Mr.
McLaughlin
was
present
in
Court
during
the
hearing
of
the
appeal,
and
this
remark
was
not
at
the
time
controverted
by
counsel
for
the
Minister.
In
the
circumstances,
I
think,
Mr.
McLaughlin
should
have
been
called
on
behalf
of
the
Minister;
he
was
the
only
person
alive,
with
the
exception
of
Mr.
Webb,
who
would
likely
know
whether
Mr.
Breadner
had
been
informed
of
the
reserve
in
question
in
the
manner
related
by
Mr.
Webb,
and
whether
or
not
Mr.
Breadner
had
considered
the
same
and
had
directed
that
it
was
to
enter
into
the
computation
of
the
Company’s
net
profits,
for
taxation
purposes,
in
the
period
in
question.
It
is
of
some
significance
that
on
the
trading
account
for
the
preceding
accounting
period,
1918,
we
find
the
notation,
"‘$500,000
carried
as
a
secret
reserve
since
prior
to
taxation
period,
’
’
under
which
appear
the
initials
of
Mr.
McLaughlin
;
this
notation
would
go
to
show
that
Mr.
McLaughlin
was
aware
of
the
existence
of
the
old
raw
cotton
reserve
in
the
accounting
of
the
Company,
and
this
he
would
no
doubt
ascertain
by
examining
together
the
trading
account
and
the
balance
sheet
for
that
period,
and
he
would
no
doubt
then
also
learn
that
the
balance
sheet
would
show
that
the
raw
cotton
inventories
were
carried
at
$500,000
below
the
value
stated
in
the
trading
account.
I
think
it
is
therefore
not
unfair
to
assume
that
Mr.
McLaughlin
would
not,
in
1919,
fail
to
see
that
this
reserve
account
had
been
increased
by
$500,000,
by
the
familiar
process,
when
the
assessment
for
the
1919
period
was
being
made.
And
the
evidence
would
go
to
show
that
Mr.
McLaughlin
would
become
aware
of
this
addition
to
the
raw
cotton
reserve
account
through
Mr.
Daniels’
discussion
of
the
matter
with
Mr.
Breadner;
I
cannot
but
believe
that
he
knew
it
was
the
subject
of
discussion
between
Mr.
Breadner
and
Mr.
Daniels,
and
he
would
know
of
Mr.
Breadner’s
final
decision
in
the
matter.
On
the
ground
of
probability
there
is,
I
think,
some
support
for
the
claim
that
the
amount
of
the
reserve
in
question
was
brought
to
the
attention
of
the
taxing
officers
for
consideration,
and
that
a
decision
for
allowance
or
disallowance
was
expected.
When
the
Company
made
its
return
in
June
of
1920,
its
officers
had,
as
I
have
already
stated,
very
strong
grounds
for
apprehending
a
very
substantial
decline
in
the
value
of
cotton
stocks
on
hand,
and
they
would,
I
think,
be
amply
justified
in
regarding
such
a
decline
as
inevitable.
That
would
be
the
situation
then
confronting
most
all
other
large
business
concerns
in
Canada,
and
there
is
evidence
to
show
that
the
creation
of
reserves
from
profits
was
then
being
allowed
business
concerns
by
the
taxing
authorities
just
to
meet
that
situation,
but
apparently
this
was
officially
approved
for
taxation
purposes
only
in
cases
where
the
reserve
was
set
up
in
the
accounting
period
in
which
the
inventory
losses
were
actually
sustained.
In
the
circumstances
it
would
be
probable,
and
not
unexpected,
that
the
Company
would
make
an
effort
to
minimize
the
effect
of
its
apprehended
inventory
losses
in
the
manner
it
did.
Moreover,
the
Company,
and
other
commercial
concerns,
had
reasons
for
hoping
that
the
Business
Profits
Act
would
not
remain
in
force
after
the
accounting
period
of
1919,
and
that
there
would
be
no
further
opportunity
of
putting
to
reserve
out
of
profits
any
amount
to
mitigate
the
anticipated
future
losses.
The
1919
accounting
period
was
in
fact
the
last
under
which
the
Company
was
taxed
under
the
Business
Profits
Act,
because
thereafter
its
assessment
under
the
Income
War
Tax
Act
exceeded
any
tax
exigible
under
the
Business
Profits
Act,
and
therefore
it
was
the
Income
War
Tax
Act
that
applied
to
the
1920
and
subsequent
accounting
periods.
I
therefore
feel
bound
to
hold
upon
the
material
before
me
that
the
matter
of
the
reserve
in
question
was
brought
to
the
attention
of
the
taxing
officers,
by
officers
of
the
Company,
and
particularly
was
it
brought
to
the
attention
of
Mr.
Breadner
by
Mr.
Daniels,
before
the
assessment
for
the
1919
period’
was
made,
on
the
occasion
mentioned
by
Mr.
Webb.
I
have
no
doubt
that
if
this
matter
were
given
favourable
consideration
by
Mr.
Breadner
the
same
would
be
communicated
to
Mr.
McLaughlin
before
the
assessment
was
made,
and
that
both
Mr.
Breadner
and
Mr.
McLaughlin
would
at
once
realize
that
to
allow
this
reserve,
for
taxation
purposes,
would
involve
a
corresponding
reduction
in
inventory
values,
and
in
the
net
profits,
for
the
1919
period.
I
think
it
must
be
assumed
that
Mr.
Breadner
decided
to
allow
the
amount
of
this
reserve
to
enter
into
the
Company’s
computation
of
profits
for
the
1919
period,
as
a
provision
against
anticipated
losses
in
inventories,
though
not
then
actually
incurred,
and
which
anticipated
losses
Mr.
Breadner
would
then
view
as
inevitable.
Had
the
amount
put
to
reserve
in
this
period
been
unknown
to
Mr.
Breadner
and
his
assistants,
and
had
not
been
put
before
Mr.
Breadner
for
consideration,
it
is
possible
that
I
would
feel
obliged
to
reach
another
conclusion
upon
this
point,
on
the
ground
that
the
reserve
was
set
up
in
view
of
an
apprehended
future
loss
which
the
Company
had
not
actually
suffered
in
the
accounting
period
in
which
the
amount
was
put
to
reserve
out
of
profits.
The
amount
of
the
reserve
having
been
allowed
for
taxation
purposes,
and
so
understood
by
the
Company,
as
I
hold,
and
the
assessed
tax
having
been
paid,
I
think
the
assess-
ment
must
now
stand
and
cannot
be
disturbed.
That
is
my
conclusion
upon
this
point.
The
final
point
upon
which
I
am
required
to
make
a
pronouncement
is
whether
or
not
the
Business
Profits
Act,
as
revived,
empowered
the
Minister
to
reassess
the
Company
for
the
several
accounting
periods
for
which
it
had
already
been
assessed
under
that
Act.
If
I
conclude
that
there
were
no
erounds
for
so
doing,
then,
what
I
have
hitherto
said
need
no
longer
be
considered,
except
as
to
any
findings
of
fact
which
are
relevant
to
the
point
I
am
about
to
discuss.
If
the
assessments
made
prior
to
the
enactment
of
the
1937
Act,
are
not
open
to
review
at
the
instance
of
the
Minister,
they
are
not
open
to
review
at
the
instance
of
the
Company
because
it
never
appealed
therefrom
within
the
time
and
in
the
manner
prescribed
by
the
Business
Profits
Act.
This
refers
only
to
the
assessments
made
under
the
Business
Profits
Act,
and
would
not
disturb
the
terms
of
the
agreement
entered
into
between
the
parties
in
respect
of
the
revaluation
of
inventories,
or
its
intended
consequences.
Section
1
of
the
Act
of
1937,
entitled
"‘An
Act
to
revive
and
amend
The
Business
Profits
War
Tax
Act,
1916,’’
reads
as
follows
:
1.
Notwithstanding
the
provisions
of
sections
two
and
five
of
chapter
sixty-five
of
the
statutes
of
1924,
entitled
“An
Act
respecting
the
Revised
Statutes
of
Canada,”
and
the
inclusion
in
Schedule
A
to
the
certified
printed
roll
of
the
Revised
Statutes
of
Canada,
1927,
of
the
Business
Profits
War
Tax
Act,
1916,
and
of
the
amendments
thereto,
the
said
the
Business
Profits
War
Tax
Act,
1916,
and
all
amendments
thereto,
are
hereby
revived
and
shall
have
the
same
force
and
effect
to
all
intents
as
if
the
said
Revised
Statutes
of
Canada,
1927,
had
not
come
into
force
and
taken
effect
as
law;
and
all
proceedings,
transactions,
matters
or
things,
had,
done,
made
or
completed,
or
purporting
to
have
been
had,
done,
made
or
completed
under
and
in
accordance
with
the
provisions
of
the
Business
Profits
War
Tax
Act,
1916,
and
the
amendments
thereto,
on
or
after
the
first
day
of
February,
one
thousand
nine
hundred
and
twenty-eight,
are
hereby
validated.
Section
2
of
this
Act
repeals
the
provisions
of
the
Business
Profits
Act
relating
to
the
procedure
for
appeals
from
assessments
made
thereunder,
and
s.
3
provides
for
the
substitution
therefor
of
certain
provisions
of
the
Income
War
Tax
Act,
and
s.
4
of
the
1937
Act
provides
that
sections
two
and
three
thereof
shall
be
applicable
to
all
appeals
under
the
Business
Profits
Act
then
pending
or
thereafter
instituted.
It
will
be
observed
therefore
that
the
1937
Act
purports
merely
to
revive
the
Business
Profits
Act
and
to
provide
a
new
procedure
for
appeals
from
assessments
made
under
that
Act,
and
nothing
else.
It
creates
no
new
duties,
obligations
or
liabilities,
so
far
as
the
taxpayer
is
concerned,
nor
does
it
deprive
him
of
any
legal
rights
sub-
sisting
or
acquired
under
the
Business
Profits
Act,
prior
to
its
revival.
In
other
words,
the
Business
Profits
Act
as
revived
has
no
retroactive
effect,
and
could
have
none
unless
it
contained
express
words
or
there
were
the
plainest
implication
to
that
effect.
Sec.
1
of
the
1987
Act,
I
might
observe,
seems
to
suggest
that
it
was
the
enactment
of
the
Revised
Statutes
of
Canada,
1927,
that
terminated
the
useful
life
of
the
Business
Profits
Act.
It
seems
to
me
that
this
result
was
effected
by
the
enactment
of
Chap.
10
of
the
Statutes
of
Canada,
1924,
which
provided
that
s.
3
of
the
Business
Profits
Act
should
not
continue
in
force
after
December
31,
1920.
In
the
Revised
Statutes
of
Canada,
1927,
at
the
beginning
of
Volume
5,
will
be
found
a
table,
Appendix
1,
giving
the
"‘history
and
disposal’’
of
Acts
enacted
between
1906
and
1927,
and
there
the
Business
Profits
Tax
Act,
1916,
is
described
as
"‘spent,’’
which
means
that
it
had
become
"‘obsolete,’’
and
‘‘obsolete’’
is
a
term
applied
to
laws
which
have
lost
their
efficacy
without
being
repealed.
Therefore
it
appears
to
me
that
if
the
Act
were
‘‘spent’’
it
was
by
reason
of
Chap.
10
of
the
Statutes
of
Canada,
1924,
and
not
because
of
the
Table
or
Appendix
referred
to,
which
was
something
introduced
into
the
Revised
Statutes
of
Canada,
1927,
for
historical
purposes,
and
I
assume
for
the
sake
of
convenience
as
well.
However,
this
is
not
of
any
practical
importance.
Sec.
1
of
the
1937
Act
provides
that
‘‘the
Business
Profits
War
Tax
Act,
1916,
and
all
amendments
thereto,
are
hereby
revived
and
shall
have
the
same
force
and
effect
to
all
intents
as
if
the
said
Revised
Statutes
of
Canada,
1927,
had
not
come
into
force
and
taken
effect
as
law.’’
One
of
the
amendments
to
that
Act
was
that
enacted
by
Chap.
10
of
the
Statutes
of
Canada,
1924,
and
s.
1
thereof
is
as
follows:
1.
The
Business
Profits
War
Tax
Act,
1916,
and
amendments,
shall
be
construed
and
have
effect
and
be
deemed
to
have
had
effect
since
its
enactment,
without
lapse
or
interruption,
as
if
section
twenty-six
when
first
enacted
had
provided
as
follows:—
"The
provisions
of
section
three
of
this
Act
shall
not
continue
in
force
after
the
thirty-first
day
of
December,
one
thousand
nine
hundred
and
twenty”;
and
anything
enacted
inconsistent
therewith
shall
be
deemed
to
have
been
superseded,
amended
or
repealed,
as
the
circumstances
may
require,
and
all
taxes,
interest
and
penalties
payable
under
the
said
Act
and
amendments
shall
remain
a
tax
owing
to
His
Majesty
until
fully
paid
and
satisfied.
It
would
appear
therefore
that
while
the
Business
Profits
Act
was
revived,
so
also
was
the
amendment
just
recited,
the
result
apparently
being
that
s.
3
of
the
Act
is
not
now
in
foree.
On
its
face,
the
1937
Act
has
every
appearance
of
a
legislative
lapse,
and
the
Business
Profits
Act
would
seem
to
be
still
"‘spent’’
and
inoperable
for
taxation
purposes
as
from
December
31,
1920.
However,
it
may
be
that
the
amendment
mentioned
is
still
effective
and
that
s.
3
of
the
Act
is
to
be
regarded
as
in
force,
but
only
in
respect
of
persons
who
were
liable
to
pay
the
tax
prior
to
December
31,
1920;
this
construction
is
perhaps
possible.
If
by
the
Act
of
1937
it
were
intended
to
revive
the
Business
Profits
Act
and
to
make
it
effective
as
a
taxing
instrument
from
the
date
of
its
enactment
and
onwards,
without
any
limitation
as
to
time,
and
that
by
implication
the
amendment
mentioned
stands
repealed,
then
it
would
seem
that
we
have
the
anomalous
and
confusing
situation
that
there
is
presently
in
force
the
Business
Profits
Act
and
the
Excess
Profits
Tax
Act,
enacted
by
Chap.
4
of
the
Statutes
of
Canada,
1939,
which
one
can
hardly
imagine
to
have
been
contemplated.
However,
this
point
did
not
arise
for
discussion
on
the
hearing
of
the
appeal
and
therefore
I
have
not
had
the
benefit
of
the
views
of
counsel
thereon.
I
do
not
intend
therefore
making
any
definite
pronouncement
upon
the
point,
and
in
my
view
of
the
case
it
is
not
necessary
to
do
so.
The
only
provision
of
the
Business
Profits
Act,
and
all
amendments
thereto,
that
purports
to
authorize
the
assessments
here
appealed
from
is,
I
think,
to
be
found
in
s.
13
(3)
of
that
Act,
and
it
is
the
contention
of
the
Company
that
upon
the
facts
here
disclosed
this
provision
of
the
Act
did
not
authorize,
and
does
not
sustain,
the
assessments
in
question,
and
that
this
alone
is
conclusive
of
the
whole
controversy
here.
Sec.
13,
ss.
(3),
as
amended
by
Chap.
34
of
the
Statutes
of
Canada,
1923,
reads.
thus
:
Any
person
liable
to
pay
the
tax
shall
continue
to
be
so
liable,
and
in
case
any
person
shall
fail
to
make
a
return
as
required
by
this
Act,,
or
shall
make
an
incorrect
or
false
return,
and
does
not
pay
the
tax
in
whole
or
in
part,
the
Minister
may
at
any
time
assess
such
person
for
the
tax,
or
such
portion
thereof
as
he
may
be
liable
to
pay
.
This
section
originally
provided
that
‘‘any
person
liable
to
pay
the
tax
shall
continue
to
be
liable
for
the
period
of
three
years
from
the
time
at
which
such
tax
would
have
been
payable/
‘
The
limitation
of
three
years
was
repealed
by
Chap.
34
of
the
Statutes
of
Canada,
1923,
and
this
repeal
was
made
retroactive.
But
the
section
as
amended
still
authorizes
the
Minister,
in
certain
events
to
assess
any
person
liable
for
the
tax,
and
in
such
cases
he
might
prescribe
the
time
within
which
any
appeal
might
be
made
from
that
assessment.
The
section
provides
that
‘‘in
case
any
person
so
liable
(for
the
tax)
shall
fail
to
make
a
return
as
required
by
this
Act,
or
shall
make
an
incorrect
or
false
return,
and
does
not
pay
the
tax
in
whole
or
in
part,
the
Minister
may
at
any
time
assess
such
person
for
the
tax,
or
for
such
portion
thereof
as
he
may
be
liable
to
pay
.
.
.”
Those
words
are,
I
think,
to
be
construed
as
meaning
that
if
a
person
liable
for
the
tax
has
made
the
return
that
was
required
of
him
by
the
Act,
and
that
such
return
was
not
inaccurate
or
false,
and
that
he
had
paid
fully
the
tax
assessed
upon
him,
the
liability
for
the
tax
ceased
and
the
Minister
was
not
empowered
to
open
up
or
review
such
assessment.
It
is
quite
clear
that
it
was
under
the
words
of
s.
13,
ss.
(3),
of
the
Business
Profits
Act
just
referred
to
that
the
assessments
in
question
were
made.
The
decision
of
the
Minister
states
that
the
Company
filed
returns
for
the
several
taxation
periods
under
the
Business
Profits
Act,
but
that
following
an
investigation
additional
taxes
were
found
owing
by
the
Company
for
the
same
taxation
periods.
The
assessments
in
question
must
therefore
have
been
made
upon
the
Company
on
the
ground
that
it
had
not
wholly
paid
the
taxes
for
which
it
was
assessed
or
liable
under
the
Business
Profits
Act,
or,
that
it
had
made
inaccurate
or
false
returns
for
the
taxable
periods
under
that
Act.
Those
grounds
must
therefore
be
established
or
the
assessments
in
question
must
fail
and
the
Company’s
appeals
succeed.
The
Company,
I
find
upon
the
evidence,
made
its
return
for
each
accounting
period
under
the
Business
Profits
Act
and
this
is
admitted;
it
did
not
make
any
incorrect
or
false
return,
and
there
is
no
evidence
to
support
the
suggestion
that
it
concealed
any
facts
that
should
have
been
disclosed
relative
to
its
profits,
or
its
liability
for
the
business
profits
tax,
in
any
taxation
period
;
it
was
assessed
for
the
tax
in
each
of
such
periods
upon
the
basis
of
its
returns
duly
made,
and
the
facts
known
or
made
known
to
the
taxing
authorities;
and
it
fully
paid
the
taxes
assessed
upon
it
for
each
of
such
taxation
periods,
and
within
the
time
prescribed
by
the
Act.
The
Minister,
I
think,
has
failed
to
establish
the
grounds
upon
which
the
assessments
in
question
were
made,
and
the
Company
has
satisfied
me
that
it
made
no
inaccurate
or
false
return
and
that
it
fully
paid
any
tax
assessed
upon
it
during
any
of
the
taxation
periods
in
question,
under
the
Business
Profits
Act.
I
am
of
the
opinion,
therefore,
that
upon
the
facts
here
disclosed
s.
13
(3)
of
the
Business
Profits
Act
did
not
authorize
the
assessments
made
by
the
Minister
thereunder
in
1937.
And
that,
I
think,
is
conclusive
of
the
matters
here
in
dispute
and
arising
under
that
Act.
It
is
unnecessary,
I
think,
to
say
anything
concerning
the
income
tax
assessments
in
question
into
which
there
does
not
enter
the
matter
of
the
capital
employed
by
the
Com-
pany
in
its
business,
or
concerning
the
method
employed
by
the
Company
in
valuing
its
inventories
as
all
debate
on
that
point
has
been
closed
by
the
agreement
entered
into
between
the
parties.
If
I
am
correct
in
holding
that
upon
the
facts
here
disclosed
there
were
no
grounds
for
making
the
assessments
here
in
question,
under
the
Business
Profits
Act,
then,
as
already
stated,
the
conclusions
earlier
expressed
upon
the
various
other
points
argued
on
this
appeal
need
no
longer
be
considered,
except
to
the
extent
already
indicated,
and
for
the
reasons
already
mentioned.
In
ease
I
have
failed
to
appreciate
accurately
all
the
implications
of
the
agreement
entered
into
between
the
parties
in
respect
of
the
valuation
of
the
Company’s
inventories
and
have
overlooked
any
point
incidental
to
that
agreement
and
upon
which
a
pronouncement
should
be
made,
such
matters
are
reserved
until
the
settlement
of
the
minutes
of
Judgment,
when
they
may
be
mentioned
to
me
by
counsel.
I
reserve
the
matter
of
the
costs
of
the
appeals
until
the
settlement
of
the
minutes
of
judgment.
Judgment
accordingly.
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