O’Connor,
J.:—This
is
an
appeal
from
the
decision
of
the
Provincial
Treasurer
affirming
the
assessment
for
income
tax
of
the
late
James
Ramsey
for
the
taxation
year
1931.
The
assessment
is
disputed
in
two
particulars:
(a)
The
sum
of
$1,904.99
received
from
the
James
Ramsey
Company
Limited.
I
quote
the
following
from
the
statement
of
facts
:
"‘(1)
The
James
Ramsey
Company
Limited
was
a
private
company,
incorporated
under
the
Alberta
Companies
Act,
having
as
its
principal
asset
in
1931
two
buildings
known
as
the
‘Kelly
Building’
and
the
‘Ramsey
Building,’
which
were
rented
to
The
T.
Eaton
Company,
Limited,
as
a
part
of
its
mercantile
establishment
in
the
City
of
Edmonton.
(2)
The
said
company
had
during
years
prior
to
1931
set
aside
out
of
rentals
received
from
The
T.
Eaton
Company,
Limited,
for
the
use
of
the
said
buildings
an
amount
equivalent
to
the
depreciation
on
the
said
buildings
allowed
by
the
Income
Tax
Department
of
the
Federal
Government,
which
was
the
only
authority
levying
income
tax
at
that
time.
“(3)
On
the
17th
day
of
January,
1931,
the
company
having
then
on
hand
certain
moneys
which
had
been
set
aside
out
of
rentals
received
during
the
year
1930
for
depreciation
on
these
buildings
as
aforesaid,
decided
that
it
would
not
require
the
said
moneys
immediately
and
distributed
it
in
specie
amongst
the
shareholders
of
the
said
company,
the
resolution
providing
for
the
distribution
referring
to
it
as
a
‘depreciation
dividend.’
The
share
paid
to
the
said
James
Ramsey
of
this
depreciation
fund
amounted
to
$1,904.99.”
Section
19
subsee.
L.
of
the
Companies
Act
1929,
Alberta,
ch.
14,
gives
the
company
power
to
‘‘distribute
any
of
the
property
of
the
Company
among
the
members
in
specie,
’
‛
but
the
company
did
not
take
the
necessary
legal
steps
to
reduce
its
capital.
The
sum
of
$1,904.99
was
derived
from
income.
It
was
deposited
in
the
company’s
bank
account
until
it
was
disbursed
as
a
“depreciation
dividend.’’
Entries
were
made
in
the
company’s
books
and
statements
showing
that
the
buildings
were
worth
less
than
the
original
book
values
and
that
a
depreciation
reserve
was
set
up
to
offset
this
loss.
Mr.
Auxier
points
out
that
the
company
could
not
have
increased
its
capital
so
as
to
capitalize
this
reserve
as
suggested
in
Re
Bates,
[1928]
Ch.
682,
and
Hill
v.
Permanent
Trustee
Co.,
[1930]
A.C.
720,
where
the
reserve
came
from
a
capital
profit.
This
is
correct.
The
company
could
however
have
invested
the
reserve
so
as
to
maintain
it
as
capital.
It
was
sound
financing
to
make
the
bookkeeping
entries
to
set
up
the
reserve
but
neither
such
entries
nor
the
styling
of
the
dividend
as
a
"depreciation
dividend’’
turned
income
into
capital.
Only
the
investment
and
maintenance
of
the
reserve
fund
could
do
this.
The
company
had
the
privilege
and
the
duty
of
setting
up
the
reserve
for
depreciation,
but
when
the
company
elected
to
disestablish
the
depreciation
reserve
and
distribute
it
the
accumulated
income
forming
the
fund
was
and
could
only
legally
be
distributed
as
income.
Counsel
for
the
respondent
relies
on
Re
Bates
(supra),
a
decision
of
Mr.
Justice
Eve,
a
decision
of
the
Privy
Council,
and
two
decisions
of
the
members
of
the
Exchequer
Court
of
Canada,
Eve,
J.,
said
:
"‘In
the
state
of
affairs
it
was
a
fund
which
the
company
could
treat
as
available
for
dividend
and
could
distribute
as
profits,
or
having
regard
to
its
power
to
increase
capital
could
apply
to
that
purpose
by,
for
example,
increasing
the
capital,
declaring
a
bonus
and
at
the
same
time
allotting
to
each
shareholder
shares
in
the
capital
of
the
company
paid
up
to
an
amount
equivalent
to
his
proportion
of
the
bonus
so
declared.
Unless
and
until
the
fund
was
in
fact
capitalized
it
retained
its
characteristics
of
a
distributable
profit
.
.
.
No
change
in
the
character
of
the
fund
was
brought
about
by
the
company
‘s
expressed
intention
to
distribute
it
as
capital.
It
remained
an
uncapitalized
surplus
available
for
distribution,
either
as
dividend
or
bonus
on
the
shares,
or
as
a
special
division
of
an
ascertained
profit
.
.
.
and
in
the
hands
of
those
who
received
it,
it
retained
the
same
characteristics.”
In
Hill
v.
Permanent
Trust
Company,
[1930]
A.C.
720,
Lord
Russell
of
Killowen
(p.
731)
:
‘A
limited
company
not
in
liquidation
can
make
no
payment
by
way
of
return
of
capital
to
its
shareholders
except
as
a
step
in
an
authorized
reduction
of
capital
.
.
.
Whether
the
payment
is
called
‘dividend’
or
‘bonus’
or
any
other
name,
it
still
must
remain
a
payment
on
division
of
profits.
“Moneys
so
paid
to
a
shareholder
will
(if
he
be
a
trustee)
prima
facie
belong
to
the
person
beneficially
entitled
to
the
income
of
the
trust
estate
.
.
.
No
statement
by
the
company
or
its
officers
that
moneys
which
are
being
paid
away
to
shareholders
out
of
profits
are
capital,
or
are
to
be
treated
as
capital,
ean
have
any
‘effect
upon
the
rights
of
the
beneficiaries
under
a
trust
instrument
which
comprises
shares
in
the
company’.”
In
Northern
Securities
v.
The
King,
[1935]
C.T.C.;
[1936]
1
D.L.R.
65,
Maclean,
J.,
said
at
p.
73
:
“But
while
this
provision
of
the
Companies
Act
permitted
the
company
to
pay
a
‘dividend’
even
if
it
impaired
capital,
that
does
not
make
the
payment
of
the
‘dividend’
a
distribution
of
capital,
which
might
have
been
done
by
reducing
the
capital
of
the
company,
if
the
company
had
acquired
the
power
to
do
so
.
.
.
The
exception,
as
to
the
payment
of
dividends,
in
favour
of
mining
companies
where
capital
is
impaired,
does
not
give
a
new
characteristic
to
the
dividend
paid
;
it
is
like
any
other
dividend
and
is
not
a
return
of
capital.
It
seems
to
me
that
the
reserve
funds
in
question
here,
built
up
from
profits
earned
from
the
operations
of
the
company,
could
be
treated
by
the
company,
and
were
treated
by
the
company,
as
a
fund
available
for
dividend,
and
they
could
and
did
distribute
the
same,
or
a
portion
thereof,
as
profits
derived
from
the
operations
of
the
company.
Accordingly,
I
am
of
the
opinion
that
the
dividends
here
paid
were
not
distributions
of
capital
but
distributions
of
profits
derived
from
the
operations
of
the
company
and
therefore
taxable
as
income
received
as
dividends
under
the
particular
provisions
of
the
statute
here
in
question.”
In
McConkey
v.
Minister
of
National
Revenue,
[1937]
C.T.C.;
[1938]
1
D.L.R.
657,
Angers,
J.,
said
at
p.
676:
‘‘The
cases
cited
are
not
identical
with
the
present
one
.
.
-
It
will
suffice
to
note
that
they
lay
down
categorically
the
following
principles
by
which
I
feel
I
must
be
governed:
that
until
a
reserve
fund
is
effectively
capitalized
it
retains
the
characteristics
of
distributable
profits;
that
a
corporation
not
in
liquidation
can
make
no
payment
to
its
shareholders
by
way
of
return
of
capital
except
as
a
step
in
an
authorized
reduction
of
capital
and
that
any
other
payment
made
to
its
shareholders
can
only
be
made
by
way
of
dividing
profits.
’
’
Counsel
for
the
appellants
suggests
that
this
case
is
distinguishable
from
the
foregoing
decisions
on
the
following
grounds,
viz.
:
1.
The
two
English
decisions
are
not
taxation
cases,
but
disputes
between
life
tenants
and
remaindermen
where
there
is
no
question
of
statutory
interpretation.
The
principles
laid
down
in
the
English
cases
however
as
to
what
is
income
and
what
is
corpus
are
properly
applied
to
the
taxation
and
interpretation
of
statutes
in
the
two
Canadian
cases.
2.
That
in
the
Canadian
cases
the
companies
in
question
had
no
power
similar
to
the
power
implied
by
sec.
(19)
L
of
the
Companies
Act,
1929,
Alberta
Ch.
14,
viz.,
to
‘‘distribute
any
of
the
property
of
the
company
among
the
members
in
specie.
‘
’
But
the
company
in
the
McConkey
ease
was
also
an
Alberta
Company.
This
power
is
necessary
in
order
to
reduce
capital
and
if
it
is
absent
the
memorandum
of
association
is
sometimes
amended
to
include
it,
but
it
cannot
be
exercised
except
as
set
out
in
the
Act,
viz.,
by
a
special
resolution
confirmed
by
the
Court.
3.
The
cases
dealing
with
the
power
of
a
company
to
declare
dividends
without
making
provision
for
depreciation
of
fixed
assets
apply
to
assets
of
a
"wasting’’
nature
such
as
mines,
quarries
or
patents
and
the
Ramsey
Company
owned
only
improved
real
estate.
I
cannot
see
that
the
invalidity
of
the
alleged
dividend
in
this
ease
is
a
proper
ground
of
distinction.
Directors
who
declare
a
dividend
improperly
cannot
be
in
any
better
position
than
if
the
dividend
was
regular.
I
follow
these
decisions
and
find
the
dividend
of
$1,904.99
is
a
division
of
income
and
taxable.
The
sum
of
$448.55
claimed
by
the
deceased
as
travelling
expenses
I
quote
the
following
from
the
statement
of
facts.
(1)
During
the
year
1931,
James
Ramsey
was
a
Director
of
Canadian
National
Railways.
(2)
During
the
said
year,
while
on
a
combined
business
and
pleasure
trip
to
the
Orient,
he
received
notice
requiring
him
to
attend
a
meeting
of
the
Directors
of
the
Canadian
National
Railways
in
Montreal.
He
consequently
travelled
from
Shanghai
to
Montreal
to
attend
this
meeting,
and
following
the
said
meeting
was
obliged
to
return
to
Shanghai
in
order
to
complete
the
business
that
he
left
unfinished
there.
(3)
Mr.
Ramsey
received
from
the
Canadian
National
Railways
during
the
year
1931
as
Director’s
fees
the
sum
of
$528.00,
and
he
claimd
to
be
entitled
to
deduct
therefrom
the
sum
of
$448.55,
being
the
cost
of
travelling
from
Shanghai
to
Montreal
in
cornection
with
the
business
of
Canadian
National
Railways.
Section
5
of
The
Income
Tax
Act
in
1931
was
in
part
as
follows
:
4(5.
(1)
‘Income'
as
hereinafter
defined
shall
for
the
purposes
of
this
Act
be
subject
to
the
following
exemptions
and
deductions.
(f)
Travelling
expenses,
including
the
entire
amount
expended
for
meals
and
lodging
while
away
from
home
in
the
pursuit
of
a
trade
or
business.
Section
6
was
in
part
as
follows
:—
^6.
In
computing
the
amount
of
the
profits
or
gains
to
be
assessed
a
deduction
shall
not
be
allowed
in
respect
of
(a)
disbursements
or
expenses
not
wholly,
exclusively
and
necessarily
laid
out
or
expended
for
the
purpose
of
earning
the
income.”
The
corresponding
rule
made
under
the
English
Act
uses
the
words
"the
expenses
of
travelling
in
the
performance
of
his
duties.
‘
‘
In
Ricketts
v.
Colquhoun,
[1926]
A.C.
1,
42
T.L.R.
66,
the
taxpayer
held
the
office
of
Recorder
in
Portsmouth
and
lived
in
London,
so
that
it
was
necessary
for
him
to
travel
to
Portsmouth.
The
Court
held
his
expenses
were
not
deductible.
Cave
(Lord
Chancellor)
said
at
page
66
(T.L.R.)
:
"They
(the
expenses)
are
incurred
not
because
the
appellant
holds
the
office
of
Recorder
of
Portsmouth,
but
because
living
and
practising
away
from
Portsmouth
he
must
travel
to
that
place
before
he
can
begin
to
perform
his
duties
as
Recorder,
and
having
concluded
those
duties,
desires
to
return
to
his
home.
They
are
incurred,
not
in
the
course
of
performing
those
duties
but
partly
before
he
enters
on
them
and
partly
after
he
has
fulfilled
them.’’
In
Cook
v.
Knott,
4
The
Times
L.R.
164,
Pollock,
C.B.,
said
;
‘“The
exemption
is
claimed
upon
the
ground
that
this
£15
was
expended
in
travelling
in
the
performance
of
the
duties
of
a
"
public
office
or
employment
where
the
person
exercising
the
same
18
necessarily
obliged
to
incur
and
defray
out
of
the
salary,
fees,
or
emoluments
of
such
office
or
employment
the
expenses
of
travelling.
‘
It
cannot
be
said
his
travelling
from
the
place
where
he
lives,
whether
near
or
far,
to
the
place
where
he
has
to
discharge
his
duties,
is
a
travelling
in
the
performance
of
those
duties.”
In
Minister
of
National
Revenue
v.
Dominion
Natural
Gas
Co.,
ante
page
144,
Duff,
C.J.C.,
says
at
page
158
:—
""
.
.
.
In
order
to
fall
within
the
category
‘disbursements
or
expenses
wholly,
exclusively
and
necessarily
laid
out
or
expended
for
the
purpose
of
earning
the
income’
expenses
must
I
think
be
working
expenses;
that
is
to
say,
expenses
incurred
in
the
process
of
earning
the
‘income’.”
The
authorities
show
that
expenses
such
as
are
in
question
here
are
not
‘‘the
expenses
of
travelling
in
the
performance
of
his
duties’’,
or
“expenses
wholly,
exclusively
or
necessarily
laid
out
or
expended
for
the
purpose
of
earning
the
income.
’
’
Then
were
the
expenses
here
‘‘expended
.
.
.
while
away
from
home
in
the
pursuit
of
a
trade
or
business’’?
I
hold
they
were
not.
James
Ramsey
was
not
away
from
Edmonton
in
pursuit
of
his
trade
or
business
as
a
director
of
the
C.N.R.
In
my
view,
the
section
refers
to
expenses
such
as
those
of
a
commercial
traveller.
I
dismiss
the
appeal,
with
costs.
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