RINFRET
J.:—The
appeal
concerns
the
income
tax
assessments
levied
against
the
appellant
by
the
Commissioner
of
Income
Tax
for
the
Province
of
British
Columbia.
The
appellant
Firestone
Tire
and
Rubber
Co.
of
Canada
Ltd.
is
a
Dominion
company
having
its
head
office
at
the
City
of
Hamilton,
in
the
Province
of
Ontario.
This
company
manufactures
pneumatic
passenger
and
truck
type
casings
and
tubes,
solid
tires,
tire
accessories,
repair
material
and
repair
equipment
at
its
plant
at
Hamilton.
It
has
no
office
or
any
employees
in
British
Columbia,
save
one,
whose
sole
duty
is
to
make
adjustments
on
faulty
products
of
the
Firestone
Co.
At
all
material
times
the
appellant
had
a
contract
with
Mac-
Kenzie,
White
&
Dunsmuir
Ltd.,
a
British
Columbia
company
doing
business
entirely
within
the
Province
and
which
is
a
wholesale
dealer
in
tires,
automobile
accessories,
radios
and
electric
supplies.
The
decision
of
the
case
turns
upon
the
construction
of
the
contract
in
question.
It
is
called
a
Distributor’s
Warehouse
Contract.
By
the
first
paragraph
thereof
(entitled
^sales’’),
the
Firestone
Co.
grants
to
MacKenzie,
White
&
Dunsmuir
Ltd.
(called
the
Distributor)
"‘the
right
to
sell
Firestone
pneumatic
passenger
and
truck
type
casings
and
tubes,
solid
tires,
all
types,
tire
accessories,
repair
materials
and
repair
equipment’’,
referred
to
in
the
contract
as
"Firestone
Products’’,
in
the
territory
of
the
Island
of
Vancouver
and
the
Province
of
British
Columbia
east
to
and
including
Revelstoke
and
Nelson.
In
consideration,
"‘the
Distributor
agrees
to
receive
from
the
Company
and
to
warehouse
in
accordance
with
the
terms
and
conditions
herein
contained
and
maintain
a
sufficient
stock
of
Firestone
Products
to
meet
the
requirements
of
his
territory
;
to
vigorously
push
the
sale
and
distribution
of
Firestone
Products
within
the
said
territory;
to
sell
to,
all
Commercial
Accounts,
to
persons,
firms
or
corporations
known
as
National
Accounts
(a
list
of
which
will
be
furnished
to
the
Distributor
by
the
Company)
who
qualify
for
and
are
entitled
to
special
prices
under
the
Company’s
regulations
from
time
to
time
made;
to
sell
or
upon
the
order
of
the
Company
to
deliver
to
the
Dominion
Government
Departments
or
their
servants
holding
certificates,
Provincial
Government
Departments,
and
in
special
cases
to
automobile
and
truck
manufacturers,
and
their
agents,
Firestone
Products
under
the
terms
and
conditions
and
at
the
prices
set
forth
and
provided
for
in
the
Company’s
regulations
from
time
to
time
made
and
furnished
to
the
Distributor.”
It
may
at
once
be
noted
that
no
question
arises
concerning
the
tire
accessories,
repair
materials
and
repair
equipment,
as
it
is
conceded
that
they
are
purchased
outright
by
MacKenzie
&
Co.
and
that,
accordingly,
these
sales
are
only
made
outside
the
Province,
to
wit:
in
Hamilton,
and
that
no
tax
is
payable
on
profits
resulting
from
these
sales.
Anything
stated
in
the
present
judgment
should
not
therefore
be
taken
to
have
any
reference
to
tire
accessories,
repair
materials
or
repair
equipment.
As
for
the
sales
to
National
Accounts,
including
the
Dominion
and
Provincial
Governments
and
the
automobile
and
truck
manufacturers,
they
are
admittedly
in
a
class
by
themselves
and
they
are
not
to
be
taken
into
account
to
ascertain
the
true
nature
of
the
general
contract
between
the
appellant
and
the
Distributor.
Bearing
in
mind
the
remarks
just
made,
we
may
now
proceed
further
with
the
analysis
of
the
contract.
Paragraph
4
(entitled
"‘LIEN’’)
provides
that
"‘the
right,
title,
ownership
and
property
of,
in
and
to
all
Firestone
Products
.
.
.
.
ordered
by
the
Distributor
from
the
Company
or
shipped
by
the
Company
to
the
Distributor
shall
be
and
remain
in
the
Company
notwithstanding
delivery,
either
actual
or
constructive,
of
the
said
Firestone
Products
or
any
part
thereof
to
the
Distributor
so
long
as
the
same
or
any
part
thereof
shall
remain
in
the
said
warehoused
stock
and
shall
not
have
been
bona
fide
sold
or
otherwise
disposed
of
to
dealers
or
consumers
in
accordance
with
the
terms
and
provisions
hereof.
’
‘
The
Distributor
may,
subject
to
the
terms,
provisos,
condi-
tions
and
agreement
‘‘resell
in
the
usual
and
ordinary
course
of
his
business,
but
not
otherwise,
any
of
the
Firestone
Products
delivered
or
to
be
delivered
by
the
Company
provided,
however,
that
no
article
shall
be
sold
by
the
Distributor
at
a
price
less
than
the
list
price
established
from
time
to
time
by
the
Company
.
.
.
.
less
such
discounts
as
may
be
authorized
from
time
to
time
in
connection
with
the
prices
so
fixed
or
to
be
fixed
by
the
Company.
The
mailing
by
the
Company
to
the
Distributor
of
such
price
lists
from
time
to
time
shall
be
conclusive
evidence
of
the
establishment
of
such
prices.”
Promptly
on
the
twenty-third
day
of
each
month
the
Distributor
must
mail
to
the
Company
a
stock
movement
report
made
up
as
of
the
twentieth
of
that
month
and
on
the
following
basis:—Inventory
of
the
twentieth
of
the
previous
month
plus
all
receipts
in
detail,
(less
deductions
for
returned
goods
and
so
forth).
‘‘New
inventory
as
of
the
twentieth
to
be
deducted
from
this
total
to
give
the
amount
to
be
charged
to
the
Distributor.
‘
‘
Any
increase
in
the
value
of
any
portion
of
the
stock
of
Firestone
Products
which
shall
not
have
been
resold
by
the
Distributor,
and
occasioned
by
a
rise
in
price
or
otherwise,
shall
enure
solely
to
the
benefit
of
the
Company.
The
Distributor
shall
accord
to
the
duly
accredited
representative
of
the
Company
full
opportunity
at
all
times
to
inspect
the
Distributor’s
books
of
account,
vouchers,
sales
notes
or
slips
and
all
other
documents
and
papers
of
the
Distributor
relating
to
the
Distributor’s
business
or
the
conduct
thereof
and
to
take
extracts
and
make
summaries
thereof
and
to
inspect
and
check
all
goods
in
the
possession
of
or
belonging
to
the
Distributor.
Paragraph
10
reads
as
follows
:--
•
‘10.
PRICE
AND
DISCOUNT.
The
Distributor
shall
account
to
the
Company
for
Firestone
Products
at
the
prices
and
shall
be
entitled
to
the
discounts
on
Firestone
Products
set
forth
and
contained
in
the
Schedule
of
Covenants
and
Conditions
hereinafter
referred
to.’’
In
the
case
of
a
decline
in
the
Company’s
dealer
list
price
or
in
the
Company’s
solid
tire
net
price
list,
the
Company
agrees
to
compensate
the
Distributor
by
merchandise
credit
in
respect
of
any
rebates
which
he
shall
have
made
to
a
dealer.
The
Company
agrees
to
prepay
the
freight
charges
on
carload
shipments
and
to
refund
the
charges
in
respect
of
shipments
less
than
carload
lots.
The
agreement
is
for
a
term
of
five
years,
with
liberty
to
each
party
of
terminating
it
upon
giving
to
the
other
one
year’s
written
notice.
The
terms,
covenants
and
conditions
upon
which
the
agreement
is
made
are
set
forth
in
detail
in
a
Schedule
attached
to
it
and
are
declared
to
have
the
same
force
and
effect
as
if
they
were
contained
in
the
body
of
the
agreement.
Among
the
terms
and
conditions
in
the
Schedule
are
the
following
:—
"The
Distributor
shall
pay
to
the
Company
for
Firestone
Products
purchased
from
the
Company,
the
following
prices,
namely
:
For
pnuematic
passenger
and
truck
type
casings
and
tubes,
.
.
.
.
the
Company’s
list
price
in
force
at
the
time
the
order
is
received
and
accepted.
Provided
that
such
list
prices
are
subject
to
change
without
notice.
"‘2.
Terms:
Payment
due
on
or
before
the
20th
day
of
the
calendar
month
following
date
of
shipment;
.
.
.
.
2%
cash
discount
to
be
allowed
if
payment
is
made
on
or
before
the
due
date.
Net
thereafter.
The
Company
may
at
its
discretion
decline
to
make
deliveries
except
for
cash
whenever
it
deems
such
action
necessary.”
If
the
Company
should
decide
as
a
matter
of
policy
that
a
graduated
bonus
for
volume
of
sales
should
be
allowed
to
dealers,
the
Distributor
will
credit
the
dealer
with
such
bonus
when
earned
and
the
Company
will,
upon
proof
to
its
satisfaction,
allow
the
Distributor
at
the
end
of
the
Company’s
fiscal
year,
the
amount
of
such
bonus
in
the
form
of
a
merchandise
credit.
The
Company
shall
not
be
bound
by
or
charged
with
any
claim
or
adjustment
made
by
the
Distributor,
unless
special
adjustment
privileges
have
been
granted
to
the
Distributor
by
the
Company;
and
there
are
elaborate
provisions
dealing
with
such
adjustment
privileges.
Paragraph
10
of
the
Schedule
reads
as
follows:
"The
Distributor
has
the
exclusive
right
to
sell
Firestone
Products
to
dealers
in
the
territory
specified,
but
this
contract
is
not
to
be
construed
as
constituting
the
Distributor
the
agent
of
the
Company
for
any
purpose.
’
’
The
only
other
material
provision
in
the
Schedule
(para.
14)
is
to
the
effect
that
the
stock
of
Firestone
Products
in
the
Distributor’s
warehouse
shall
be
at
the
sole
risk
of
the
Distributor
and
the
Distributor
agrees
at
all
times
to
carry
in
the
name
of
the
Company,
with
loss
payable
to
the
Company,
but
at
the
expense
of
the
Distributor,
insurance
on
the
said
stock.
This
provision
was
later
modified
by
a
letter
dated
March
1,
1934,
whereby
MacKenzie
&
Co.
were
"‘relieved
of
all
respon-
sibility
whatsoever
as
to
fire
insurance.”
But
it
was
explained
that
the
new
arrangement
was
made
because
MacKenzie
&
Co.
felt
that
they
would
save
money
on
the
premiums,
in
view
of
the
fact
that
the
Firestone
Co.
was
able
to
make
a
Dominionwide
contract
and
that,
in
such
a
way,
the
saving
on
the
premiums
would
accrue
to
MacKenzie
&
Co.
The
latter,
however,
continued
to
pay
the
premiums,
although
at
the
more
advantageous
rates
secured
by
the
Firestone
Co.
The
Commissioner
of
Income
Tax
contends
that,
as
a
result
of
the
agreement
above
outlined,
the
Distributor
is
an
agent
for
making
sales
of
the
Firestone
Products
on
behalf
of
the
appellant
in
British
Columbia,
and
that,
as
a
consequence,
the
Firestone
Co.
must
pay
income
tax
on
the
profits
it
makes
on
the
sales
of
these
products
in
the
Province.
Pursuant
to
the
Income
Tax
Act
(R.S.B.C.
1936,
c.
280)
the
appellant,
on
April
8,
1938,
was
assessed
in
respect
of
income
for
the
fiscal
years
from
October
31,
1927
to
October
31,
1931
inclusive,
and
from
October
31,
1932
to
October
31,
1937
inclusive,
to
the
amounts
of
$3,255.14
and
$6,322.77
respectively.
Under
s.
41
of
the
Zncome
Tax
Act,
these
assessments
were
placed
before
the
Minister
of
Finance
by
the
Commissioner
of
Income
Tax
and,
after
considering
the
submission
contained
in
the
appeal
submitted
on
behalf
of
the
Firestone
Co.
and
the
information
and
documents
on
file
in
the
office
of
the
Commissioner,
the
assessments
were
confirmed
by
the
Minister.
Upon
appeal
to
a
Judge
of
the
Supreme
Court
of
British
Columbia
from
the
decision
of
the
Minister
of
Finance,
the
appeal
was
allowed;
but
upon
a
further
appeal
to
the
Court
of
Appeal
of
British
Columbia
([1941]
3
D.L.R.
256),
the
decision
of
the
Minister
was
restored
with
costs,
except
as
to
the
amount
of
tax,
if
any,
levied
on
income
of
the
Firestone
Co.
earned
on
the
sale
of
accessories,
repair
materials
and
repair
equipment;
otherwise
the
assessments
were
confirmed.
The
Chief
Justice
of
British
Columbia
and
D.
A.
McDonald
J.A.
however
dissented
from
that
judgment
and
stated
that
they
had
reached
the
same
conclusion
as
the
learned
trial
Judge.
It
must
be
admitted
that
the
wording
of
the
contract
under
discussion
makes
the
ease
a
difficult
one,
for,
to
borrow
the
words
of
Viscount
Haldane
in
Michelin
Tyre
Co.
Ltd.
v.
Macfarlane
(Glasgow)
Ltd.
(
(1916),
55
Se.
L.R.
35
at
p.
39).
‘‘The
decision
must
turn
on
the
right
reading
of
agreements
which
have
aimed
at
putting
into
writing
the
methods
of
men
whose
concern
has
been
with
practical
results
in
business
rather
than
with
exactitude
in
legal
definition.’’
But,
as
stated
by
Pollock
M.R.
in
Commissioners
of
Inland
Revenue
v.
Eccentric
Club
Ltd.
((1923),
12
T.C.
657
at
p.
690):
‘‘
It
is
a
well-recognised
principle
that,
in
revenue
cases,
regard
must
be
had
to
the
substance
of
the
transactions
relied
on
to
bring
the
subject
within
the
charge
to
a
duty,
and
that
the
form
may
be
disregarded.
‘
‘
And
in
order
to
get
at
the
substance
of
the
transactions
between
the
appellant
and
the
MacKenzie
Co.
it
will
undoubtedly
be
helpful
to
examine
the
"‘methods’’
followed
by
them
in
the
carrying
out
of
the
contract,
as
they
have
been
explained
in
the
course
of
the
evidence
given
at
the
trial.
‘‘There
is
no
better
way
of
seeing
what
the
parties
intended
than
seeing
what
they
did”
under
the
agreement
(Chapman
v.
Bluck,.
4
Bing.
N.C.
187
at
p.
193,
132
E.R.
760;
Doe
d.
Pearson
v.
Ries
c
Knapp
9
8
Bing,
178
at
p.
181,
131
E.R.
369).
MacKenzie,
White
&
Dunsmuir
Ltd.
do
a
large
volume
of
business.
They
keep
a
stock
commensurate
with
the
amount
of
business
they
are
doing
and,
in
order
to
meet
the
requirements
of
their
clients,
they
place
orders
(which
they
call
specifications)
with
the
factory
of
the
appellant,
upon
receipt
of
which
orders
the
latter
ships
the
goods
usually
in
carload
lots.
The
appellant
has
no
right
to
tell
the
MacKenzie
Co.
how
much
stock
they
shall
carry.
As
a
matter
of
fact,
no
orders
for
tires
placed
by
the
MacKenzie
Co.
has
ever
been
refused,
nor
has
any
complaint
ever
been
made
on
that
score.
The
specification
or
order
for
goods
merely
states
the
number
and
the
kind
of
tires
that
are
required.
It
is
sent
to
the
appellant
at
Hamilton
and,
upon
it
being
accepted
(and
we'are
told
that
none
has
ever
been
rejected),
a*memorandum
invoice
or
a
record
of
the
shipment
is
sent
by
the
appellant
from
Hamil-
ton
to
the
MacKenzie
Co.
in
Vancouver,
freight
prepaid.
On
this
memorandum
invoice,
as
it
is
called,
the
number,
the
size
and
the
description
of
the
tires
ordered
are
repeated
in
the
same
way
as
appears
in
the
specifications
sent
by
the
MacKenzie
Co.,
but
the
prices
are
not.
extended,
the
reason
for
it
being
that
the
MacKenzie
Co.
does
not
pay
upon
this
specific
invoice.
It
pays,
in
accordance
with
the
terms
of
the
contract
as
we
have
already
seen
them,
only
for
the
removals
from
the
stock
in
the
eourse
of
the
period
extending
between
the
20th
day
of
the
previous
month
and
the
20th
day
of
the
month
on
which
the
report
is
mailed
by
the
MacKenzie
Co.
to
the
Firestone
Co.,
as
provided
for
in
clause
6
of
the
contract.
On
the
28rd
of
each
month
the
monthly
inventory
and
sales
report
is
sent
showing
these
removals
from
stock.
The
report
indicates
the
inventory
of
the
goods
as
of
the
20th
of
the
previous
month,
the
receipts
of
goods
in
the
course
of
the
month
just
expired
and
the
inventory
on
the
20th
of
the
month
on
which
the
report
is
made.
By
deducting
the
new
inventory
from
the
total
shown
by
the
inventory
of
the
previous
month,
plus
all
receipts
in
the
meantime,
the
parties
arrive
at
the
total
removal
to
be
charged
to
the
MacKenzie
Co.;
and,
the
quantity
of
removals
of
each
particular
description
having
thus
been
ascertained,
a
new
invoice
is
sent
from
Hamilton
by
the
Firestone
Co.
to
the
MacKenzie
Co.
on
which
the
prices
are
extended
and
showing
the
amount
which
the
latter
will
have
to
pay
on
or
before
the
20th
of
the
month
following
the
mailing
of
their
report.
That
is
done
every
month.
The
prices
charged
to
the
MacKenzie
Co.,
according
to
the
contract,
are
those
"‘in
force
at
the
time
the
order
is
received
and
accepted.’’
Those
prices
are
fixed
by
all
the
Rubber
Companies
and
are
stabilized
across
Canada.
Those
are
the
prices
that
the
MacKenzie
Co.
are
called
upon
and
are
obliged
to
pay
to
the
appellant
and
not,
as
stated
in
the
judgments
of
the
majority
of
the
Court
of
Appeal,
"'the
proceeds
of
the
sales,
made
by
the
Distributor
in
Vancouver.”
This
is
very
important
as
it
has
necessarily
a
particular
bearing
on
the
question
of
the
relationship
of
the
parties.
Thus
the
MacKenzie
Co.
is
charged
with
the
goods
removed
from
stock
in
the
course
of
the
previous
month
and
it
is
not
called
upon
to
account
for
the
proceeds
of
these
goods,
it
is
only
obliged
to
pay
for
them
at
the
price
prevailing
‘‘at
the
time
the
order
is
received
and
accepted.”
There
may
have
been
a
change
of
price
in
the
meantime
to
which
the
MacKenzie
Co.
may
be
subject
under
certain
circumstances
provided
for
in
the
contract,
but
this
does
not
affect
the
essential
provision
that
what
they
are
charged
with
by
the
appellant
and
what
they
pay
is
the
price
stipulated
by
the
terms
of
the
contract
and
not
the
proceeds
of
the
sales
made
to
the
dealers
in
Vancouver
or
the
specific
creditor.
Now,
the
Mackenzie
Co.
is
charged
with
and
pays
for
all
the
goods
removed
from
stock
as
shown
in
the
Inventory
Report,
and
we
agree
with
the
learned
trial
Judge
and
it
is
established
by
the
evidence
that,
under
the
contract
goods
removed
from
stock
would
include
not
only
those
that
have
actually
been
sold,
but
also
any
other
goods
that
might
have
disappeared
through
fire,
theft
or
other
occurrences.
The
only
concern
of
the
Firestone
Co.
is
with
regard
to
the
quantity
of
goods
of
the
specified
description
which
have
been
removed
from
the
stock
warehoused
and
to
the
amount
that
they
are
to
receive
from
the
MacKenzie
Co.
for
the
goods
so
removed,
at
the
price
fixed
under
the
terms
of
the
contract.
The
appellant
has
no
control
over
the
sales
or
the
removals
made
in
Vancouver;
it
has
no
authority
to
give
instructions
as
to
whom
the
goods
shall
be
sold.
It
employs
no
salesmen
of
its
own;
it
has
no
employees
in
British
Columbia,
except
the
man
already
referred
to
whose
only
duty
is
to
approve
the
adjustments
on
claims
made
upon
the
MacKenzie
Co.
by
their
purchasers.
The
MacKenzie
Co.
run
their
own
business,
of
which
the
sale
of
Firestone
Products
is
only
a
small
part
(evidence
shows
25%
of
the
whole
business)
;
they
employ
their
own
servants,
with
whom
the
appellant
has
nothing
to
do
whatever;
they
make
their
sales
as
they
please,
in
their
own
name,
and
they
give
title
directly
to
the
purchasers.
As
a
matter
of
fact
they
ean
do
absolutely
what
they
like
with
the
goods
in
the
warehouse
and
they
deal
with
them
as
owners.
The
Firestone
Co.
is
not
bound
by
or
not
to
be
charged
with
any
claim
or
adjustment
made
by
the
MacKenzie
Co.,
except
as
a
result
of
special
privileges
granted
to
the
debtor
by
the
appellant
under
the
provisions
of
the
contract.
As
for
the
MacKenzie
Co:
itself,
it
becomes
liable
for
the
payment
of
the
goods
as
soon
as
they
have
disappeared
from
the
inventory;
and
if
the
purchasers
do
not
pay,
the
loss
is
the
MacKenzie
Co.’s
loss;
the
appellant
‘‘takes
absolutely
no
loss
whatever.’’
Upon
an
examination
of
the
terms
of
the
agreement,
of
the
"‘methods’’
adopted
by
the
parties
to
carry
it
out
and
of
the
course
of
dealings
between
them,
I
find
myself
in
agreement
with
the
learned
trial
Judge
and
the
two
dissenting
Judges
in
the
Court
of
Appeal
that
the
contract
between
the
parties
is
not
that
of
agency,
but
is
that
of
sale.
Here
we
have,
first,
a
case
of
offer
and
acceptance.
Under
no
circumstances
contemplated
in
the
contract
does
the
Firestone
Co.
ship
goods
without
an
order
or
specification.
Then
we
have
the
promise
to
pay
for
the
goods
made
by
the
MacKenzie
Co.
It
is
not
an
obligation
10
pay
which
arises
only
upon
the
MacKenzie
Co.
having
received
the
amount
paid
by
a
customer
as
a
result
of
a
sale.
The
MacKenzie
Co.
becomes
liable
for
the
payment
as
soon
as
the
goods
are
removed
from
the
warehouse
or
disappear
from
the
inventory.
Immediately
upon
such
occurrence
they
are
obliged
to
pay
the
price
fixed
under
thé
contract,
irrespective
of
the
amount
paid
by
the
customer
and
whether
the
customer
pays
or
not.
The
agreement
ealls
for
no
act
done
within
British
Columbia
in
order
to
complete
the
sale.
The
removal
of
the
goods
from
inventory
does
not
make
the
title
of
the
MacKenzie
Co.
to
the
goods
any
more
complete
than
it
was
upon
its
order
or
specification
being
accepted
in
Hamilton.
The
occurrence
of
the
removal
has
only
the
effect
of
fixing
the
date
of
the
payment
of
the
price
of
sale,
which
is
irrevocably
established
by
the
specific
terms
and
conditions
of
the
contract.
The
due
date
of
the
payment
is
the
20th
of
the
month
following
the
removal
or
disappearance
of
the
goods
from
the
warehouse.
That
is
the
only
object
of
referring
to
the
disappearance
or
removal
of
the
goods.
It
has
nothing
to
do
with
the
completion
of
the
sale
as
between
the
appellant
and
the
MacKenzie
Co.
;
it
is
there
mentioned
only
for
the
purpose
of
fixing
the
date
of
the
payment.
It
is
true
that,
as
a
result
of
the
terms
so
agreed
upon
by
the
appellant,
the
due
date
of
the
payment
might
never
occur—
although,
in
practice,
that
would
no
doubt
be
an
exceptional
ease—but
that
would
flow
only
from
the
terms
upon
which
the
parties
have
agreed.
It
is
essentially
a
matter
for
the
vendor’s
concern
and
I
do
not
see
how
it
can
alter
the
nature
of
the
contract.
Such,
in
my
view
and
with
respect,
is
the
substance
of
the
agreement
which
the
respondent
asks
the
Court
to
bring
within
the
charge
of
the
Income
Tax
Act
of
British
Columbia.
I
do
not
understand
it
to
be
disputed
that
if
that
contract
is
to
be
construed
as
an
agreement
of
sale,
made
in
Hamilton,
Ontario,
the
profits
accruing
to
the
appellant
are
not
income
earned
in
British
Columbia
and
coming
within
the
charge
of
the
Income
Tax
Act
of
that
Province.
The
ground
upon
which
the
Commissioner
of
Income
Tax
claims
that
these
profits
are
subject
to
the
charge
is
that
the
contract
under
discussion
is
one
of
agency,
that
the
MacKenzie
Co.
is
only
the
agent
of
the
appellant
and
that
consequently
the
sales
made
to
the
purchasers
in
British
Columbia
are
in
reality
made
by
the
appellant.
In
my
view,
the
relationship
between
the
Firestone
Co.
and
the
MacKenzie
Co.
is
one
of
vendor
and
purchaser;
whatever
profits
are
derived
from
it
by
the
Firestone
Co.
result
from
a
contract
of
sale
made
in
Hamilton,
Ontario;
and,
accordingly,
neither
upon
that
contract
as
a
matter
of
construction
nor
constitutionally,
may
the
respondent
Commissioner
of
Income
Tax
legally
and
validly
assess
the
appellant’s
profits
as
claimed
in
the
present
case.
No
doubt
some
of
the
clauses
of
the
agreement
may
be
held
consistent
with
agency
relationship,
but
none
of
them
are
inconsistent
with
the
notion
of
an
outright
sale.
Primarily
we
have
the
declared
intention
of
the
parties
in
clause
10
of
the
Schedule
that
4
"
this
contract
is
not
to
be
construed
as
constituting
the
Distributor
the
agent
of
the
Company
for
any
purpose.”
There
is
no
suggestion,
anywhere
in
the
ease,
of
bad
faith
or
of
colourable
phraseology
used
by
the
parties
for
the
purpose
of
defeating
the
British
Columbia
legislation.
The
contract
has
now
been
in
force
for
at
least
20
years.
There
can
be
no
doubt
that
under
that
stipulation
in
clause
10,
between
the
parties
themselves
at
all
events,
such
a
clause
would
have
to
be
given
its
full
effect.
Then
we
have
the
situation
that
the
MacKenzie
Co.
gets
all
the
profits
on
the
sales
to
the
purchasers
in
British
Columbia
and
that
it
bears
al]
the
losses.
We
have
the
further
fact
that
the
MacKenzie
Co.
pays
the
appellant
as
a
debtor
and
not
as
an
accountant.
It
must
pay
on
the
date
fixed
bv
the
contract
the
price
stipulated
therein,
without
any
reference
to
the
price
which
it
gets
from
its
customers
and
even
in
the
case
where
it
does
not
collect
from
them
any
amount
whatever.
Of
course
there
is
clause
4
of
the
contract,
by
force
of
which
the
right,
title,
ownership
and
property
of
the
Firestone
Products
ordered
by
the
MacKenzie
Co.
and
shipped
by
the
appellant
remain
in
the
latter,
notwithstanding
delivery
either
actual
or
constructive,
so
long
as
the
same
remains
in
the
warehoused
stock
and
has
not
been
bona
fide
sold
or
otherwise
disposed
of
in
accordance
with
the
terms
of
the
contract.
But
that
clause
is
styled
"‘LIEN’’.
It
is
consistent
with
the
idea
that
the
legal
title
will
remain
in
one
while
the
beneficial
title
becomes
vested
in
the
other.
To
a
situation
such
as
this
the
words
of
the
present
Chief
Justice
of
this
Court
in
John
Deere
Plow
Co.
v.
Agnew
(1913),
10
D.L.R.
576
at
pp.
584-5,
48
S.C.R.
208
at
p.
231,
may
well
be
applied:
"
‘It
is,
in
my
judgment,
an
agreement
relating
to
the
sale
and
purchase
of
goods
embodying
elaborate
provisions
for
the
protection
of
the
sellers.
Until
the
sellers
have
been
paid
in
full
the
property
remains
vested
in
them,
and
all
moneys
received
on
sale
by
the
respondent
are
to
be
treated
as
theirs;
but
the
rights
thus
reserved
to
them
are
only
for
securing
the
payment
of
the
purchase
money;
and
on
payment
they
would
disappear
at
once.
Subject
to
the
rights
so
held
by
the
sellers
as
security,
the
purchaser
is
the
beneficial
owner
of
the
goods.
‘
‘
The
clause
subjecting
to
certain
conditions
the
^resale”
by
the
MacKenzie
Co.
to
its
customers
is
readily
explained
by
the
fact
that
the
appellant
gives
to
the
MacKenzie
Co.
the
exclusive
right
to
sell
their
products
in
the
defined
territory.
The
same
may
be
said
of
the
clauses
relating
to
advertising
and
bonus.
They
are
according
to
usual
practice
and
merely
intended
for
promoting
the
sales.
The
provision
that
the
goods
are
to
be
paid
upon
being
removed
is,
as
we
have
seen,
merely
a
term
of
credit.
The
learned
trial
Judge
relied
on
the
decision
of
this
Court
in
John
Deere
Plow
Co.
v.
Agnew,
supra,
and
I
think
he
was
perfectly
justified
in
doing
so.
Many
of
the
circumstances
in
that
case
are
also
present
here.
There
also
the
question
of
the
retention
of
title
and
property,
the
obligation
to
insure
in
the
name
of
the
vendor,
the
compulsion
upon
the
purchaser
to
sell
at
a
fixed
price
were
stipulated
in
the
contract;
and
yet
the
agreement
was
held
not
to
be
an
agency
contract.
A
strikingly
similar
situation
was
examined
by
the
House
of
Lords
in
the
ease
of
Michelin
Tyre
Co.
Ltd.
v.
Macfarlane
(Glasgow)
Ltd.
(55
Se.L.R.
35)
and
their
Lordships
held
that
the
relationship
created
between
the
parties
by
such
a
contract
was
one
of
sale
and
return.
Moreover,
in
the
latter
case,
the
vendors
had
the
right
to
recall
the
goods
and,
in
the
agreement
under
discussion,
there
is
no
provision
to
that
effect.
The
result
is
that
the
contract
between
the
appellant
and
the
MacKenzie
Co.
is
a
contract
of
sale
made
in
Hamilton,
Ontario,
and
that
the
profits
accruing
to
the
appellant
as
a
result
of
such
a
contract
are
not
income
earned
in
the
Province
of
British
Columbia.
Therefore,
they
do
not
come
within
the
Income
Tax
Act
of
that
Province,
indeed
constitutionally
they
could
not
come
under
it
(The
King
v.
Lovitt,
[1912]
A.C.
212;
Provincial
Treasurer
of
Alberta
v.
Kerr,
[1933],
4
D.L.R.
81,
A.C.
710).
The
conclusion
thus
reached
makes
it
unnecessary
to
discuss
the
point
whether,
at
all
events,
the
assessments
having
been
made
indiscriminately
both
on
the
manufacturing
profits
in
Hamilton
and
the
selling
profits
in
British
Columbia,
they
might
not
have
been
held
unconstitutional
and
be
equally
set
aside
on
that
ground.
(See
Duff
C.J.C.
in
International
Harvester
Co.
v.
Provincial
Tax
Com’n,
[1941]
3
D.L.R.
65
at
p.
68,
S.C.R.
325
at
p.
331).
The
appeal
should
therefore
be
allowed
with
costs
here
and
in
the
Court
of
Appeal
and
the
judgment
at
the
trial
should
be
restored.
The
judgment
of
Kerwin
and
Hudson
JJ.
was
delivered
by
KERWIN
J.
(dissenting)
:—Firestone
Tire
and
Rubber
Co.
of
Canada
Ltd.,
is
a
Dominion
company
having
its
head
office
at
Hamilton,
Ontario,
where
it
manufactures
tires
and
casings,
automobile
accessories
and
repair
material
and
equipment.
Under
the
provisions
of
successive
British
Columbia
taxation
Acts,
the
Commissioner
of
Income
Tax
for
that
Province
had
assessed
the
Company
to
income
tax.
The
assessments
were
confirmed
by
the
Provincial
Minister
of
Finance
but
were
set
aside
by
Murphy
J.
of
the
Supreme
Court
of
British
Columbia.
From
that
decision
an
appeal
was
taken
to
the
Court
of
Appeal
by
the
present
respondent,
the
Commissioner
of
Income
Tax.
The
Commissioner
did
not
claim
in
either
Court
that
the
Company
was
subject
to
income
tax
on
the
profits
derived
from
the
sales
in
British
Columbia
of
accessories,
repair
material
and
repair
equipment.
He
did,
however,
contend
that
all
other
Firestone
Products
were
merely
warehoused
by
a
distributor
in
Vancouver,
which
was
in
reality
the
agent
of
the
Company,
and
that
the
Company
was
therefore
liable
for
income
tax
with
respect
to
the
income
from
the
sale
in
British
Columbia
of
those
products.
The
Court
of
Appeal
agreed
with
this
contention,
the
Chief
Justice
of
British
Columbia
and
Mr.
Justice
D.
A.
McDonald
dissenting.
Section
3
of
the
Income
Tax
Act,
R.S.B.C.
1936,
e.
280
provides
:—
^3.(1)
To
the
extent
and
in
the
manner
provided
in
this
Act.
and
for
the
raising
of
a
revenue
for
Provincial
purposes
:—
"‘(a)
all
Income
of
every
person
resident
in
the
Province
and
the
income
earned
within
the
Province
of
persons
not
resident
in
the
Province
shall
be
liable
to
taxation.
‘
‘
The
earlier
applicable
legislation
contains
a
similar
provision.
Bearing
in
mind
that
we
are
not
concerned
with
accessories,
repair
material
and
repair
equipment,
the
result
of
this
appeal
depends,
first
of
all,
upon
the
proper
construction
of
a
certain
agreement
between
the
Company
and
the
Distributor
referred
to
above,
MacKenzie,
White
and
Dunsmuir
Ltd.
By
clause
1
of
the
agreement
:—
"‘1.
SALES.
The
Company
hereby
grants
to
the
Distributor
upon
the
terms
and
conditions
hereinafter
set
forth,
the
right
to
sell
Firestone
pneumatic
passenger
and
truck
type
casings
and
tubes,
solid
tires,
all
types,
tire
accessories,
repair
materials
and
repair
equipment,
hereinafter
referred
to
as
Firestone
Products,
in
the
following
territory
:’’
It
will
be
noted
that
the
Company
does
not
agree
to
sell
any
of
its
products
to
the
distributor.
Clause
2
merely
provides
for
the
territory
to
be
covered.
By
clause
3
:—
"3.
CONSIDERATION.
In
consideration
whereof
the
Distributor
agrees
to
receive
from
the
Company
and
to
warehouse
in
accordance
with
the
terms
and
conditions
herein
contained
and
maintain
a
sufficient
stock
of
Firestone
Products
to
meet
the
requirements
of
his
territory;
to
vigorously
push
the
sale
and
distribution
of
Firestone
Products
within
the
said
territory
;
to
sell
to
all
Commercial
Accounts,
to
persons,
firms
or
corporations
known
as
National
Accounts
(a
list
of
which
will
be
furnished
to
the
Distributor
by
the
Company)
who
qualify
for
and
are
entitled
to
special
prices
under
the
Company’s
regulations
from
time
to
time
made;
to
sell
or
upon
the
order
of
the
Company
to
deliver
to
the
Dominion
Government
Departments
or
their
servants
holding
certificates,
Provincial
Government
Departments,
and
in
special
eases
to
automobile
and
truck
manufacturers,
and
their
agents,
Firestone
Products
under
the
terms
and
conditions
and
at
the
prices
set
forth
and
provided
for
in
the
Company’s
regulations
from
time
to
time
made
and
furnished
to
the
Distributor.’’
It
will
be
noted
that
by
this
clause
the
distributor
does
not
agree
to
buy
any
of
the
Company’s
products.
By
clause
4:—
“4.
LIEN.
The
right,
title,
ownership
and
property
of
in
and
to
all
Firestone
Products
which
have
been
heretofore
or
may
hereafter
be
ordered
by
the
Distributor
from
the
Company
or
shipped
by
the
Company
to
the
Distributor
shall
be
and
remain
in
the
company
notwithstanding
delivery
either
actual
or
constructive
of
the
said
Firestone
Products
or
any
part
thereof
to
the
Distributor
so
long
as
the
same
or
any
part
thereof
shall
remain
in
the
said
warehoused
stock
and
shall
not
have
been
bona
fide
sold
or
otherwise
disposed
of
to
Dealers
or
Consumers
in
accordance
with
the
terms
and
provisions
hereof.’’
Clause
5
provides
for
a.
list
price
to
be
established
by
the
Company,
below
which
the
distributor
may
not
sell
but,
as
considerable
weight
is
attached
to
the
word
‘‘resell’’,
the
clause
is
reproduced
:—
“5.
RESALE.
The
Distributor
may,
subject
to
the
terms,
provisos,
conditions
and
agreement
herein
contained
resell
in
the
usual
and
ordinary
course
of
his
business
but
not
otherwise
any
of
the
Firestone
Products
delivered
or
to
be
delivered
by
the
Company
provided,
however,
that
no
article
shall
be
sold
by
the
Distributor
at
a
price
less
than
the
list
price
established
hereafter
from
time
to
time
to
be
established
by
the
Company
as
the
list
price
for
the
sale
thereof
by
the
Distributor
less
such
discounts
as
may
be
authorized
from
time
to
time
in
connection
with
the
prices
so
fixed
or
to
be
fixed
by
the
Company.
The
mailing
by
the
Company
to
the
Distributor
of
such
price
lists
from
time
to
time
shall
be
conclusive
evidence
of
the
establishment
from
time
to
time
of
such
prices.
‘
‘
It
may
at
once
be
stated
that,
in
my
view,
the
word
"‘resell’’
does
not
merit
the
importance
it
has
received,
in
view
of
such
words
in
clause
5
as
‘‘deliver’’,
‘‘sold’’,
and
"‘sale’’,
and
also
in
view
of
subsequent
clauses
in
the
agreement.
By
them
a
report
is
to
be
made
on
the
28rd
day
of
each
month,
made
up
as
of
the
20th
of
that
month,
on
the
following
basis:
to
the
inventory
of
the
20th
of
the
previous
month
is
to
be
added
all
goods
received,
and
the
new
inventory
as
of
the
20th
of
the
current
month
is
to
be
deducted
from
the
total,
to
give
the
items
to
be
charged
to
the
Distributor.
Provision
is
made
whereby
any
increase
in
value
of
any
portion
of
the
stock
shall
inure
solely
for
the
benefit
of
the
Company,
while
in
the
event
of
a
price
decline
the
Company
agrees
to
compensate
the
Distributor
by
a
merchandise
credit.
The
word
‘‘resold’’
appears
in
clause
7
dealing
with
price
increase
but,
for
the
reasons
already
advanced,
it
does
not
affect
the
construction
to
be
placed
upon
the
document
when
read
in
its
entirety.
The
agreement
is
for
five
years
with
provision
for
an
earlier
termination
and
I
agree
with
O’Halloran
J.A.
that
in
the
event
of
such
termination
the
Firestone
Products
warehoused
with
the
Distributor
would
belong
to
the
Company.
Further
carrying
out
the
idea
that
the
Distributor
is
not
a
purchaser,
the
agreement
provides
that
it
shall
account
to
the
Company
for
the
goods
in
question
as
set
forth
in
the
schedule
of
covenants
and
conditions
attached
to,
and
forming
part
of,
the
agreement.
Paragraph
1
of
this
schedule
states
:—
‘“The
Distributor
shall
pay
to
the
Company
for
Firestone
Products
purchased
from
the
Company,
the
following
prices,
namely:
For
pneumatic
passenger
and
truck
type
casings
and
tubes,
accessories,
repair
materials
and
repair
equipment,
the
Company’s
list
price
in
force
at
the
time
the
order
is
received
and
accepted.
Provided
that
such
list
prices
are
subject
to
change
without
notice.”
The
word
"purchased”
as
here
used
refers
to
the
purchase
by
a
purchaser
from
the
Company
through
the
Distributor.
Because
of
the
significance
attached
to
para.
10
by
Murphy
J.
(with
whom
the
two
dissenting
Judges
in
the
Court
of
Appeal
agreed),
it
is
reproduced
:—
‘410.
The
Distributor
has
the
exclusive
right
to
sell
Firestone
Products
to
dealers
in
the
territory
specified
but
this
contract
is
not
to
be
construed
as
constituting
the
Distributor
the
agent
of
the
Company
for
any
purpose.’’
The
intention
of
the
latter
part
of
this
paragraph
is
merely
to
insure,
so
far
as
possible,
that
the
Distributor
should
not
undertake
on
behalf
of
the
Company
to
make
terms
and
conditions
when
selling
that
would
be
binding
upon
the
Company.
Paragraph
14
providing
that
the
products
in
the
Distributor
‘s
warehouse
or
in
his
possession
should
be
at
the
sole
risk
of
the
Distributor,
who
has
to
carry
insurance
thereon
in
the
name
of
the
Company,
was
varied
by
a
letter
of
March
1st,
1934,
whereby
the
Distributor
was
relieved
of
all
responsibility
as
to
fire
insurance.
What
is
the
effect
of
this
agreement?
It
has
been
urged
that
the
agreement
is
similar
to
the
one
considered
in
John
Deere
Plow
Co.
v.
Agnew,
10
D.L.R.
576.
In
my
view
the
two
agreements
are
entirely
dissimilar
and
the
judgment
of
O’Halloran
J.A.
deals
with
the
difference
in
such
a
satisfactory
manner
that
I
am
content
to
adopt
his
remarks
on
that
point.
After
consideration
of
all
the
arguments
to
the
contrary,
I
have
concluded
that
the
effect
of
this
agreement
is
to
make
the
distributor
merely
an
agent
of
the
Company
for
the
sale
of
the
goods
that
are
in
issue
in
this
appeal.
It
is
perhaps
unnecessary
to
state
that
the
Distributor
does
not
take
orders
for
Firestone
Products
to
be
sent
to
the
head
office
of
the
Company
in
Ontario,
but
sells
the
goods
direct
and
receives
the
purchase-price
therefor
in
British
Columbia.
The
system
of
monthly
inventories
provides
the
method
of
calculating
the
remuneration
of
the
Distributor
as
agent,
for
its
services.
In
this
connection
there
remains
but
to
add
that
the
carrying
out
of
the
agreement
strengthens
the
above
conclusion,
particularly
the
fact
that
in
the
general
financial
balance
of
the
Company
the
goods
warehoused
with
the
Distributor
are
included
on
the
asset
side
under
the
heading
of
‘"inventories”.
No
question
was
raised
as
to
the
constitutional
validity
of
the
provision
in
s-s.
(1)
of
s.
3
of
the
Act
that
"
"
the
income
earned
within
the
Province
of
persons
not
resident
within
the
Province
shall
be
liable
to
taxation’’
but
it
was
argued
that,
assuming
that
the
Company
earned
income
in
British
Columbia,
the
assessments
were
invalid
because
they
were
made
indiscriminately
on
income
earned
in
the
Province
and
that
earned
outside.
This
question
is
not
the
same
as
that
which
arose
in
Commissioners
of
Taxation
v.
Kirk,
[1900]
A.C.
588.
By
s.
15
of
the
New
South
Wales
Act
there
under
review,
an
income
tax
was
to
be
paid
at
a
rate
to
be
fixed
on
all
incomes
exceeding
£200
per
annum
:—
"‘(1)
Arising
or
accruing
to
any
person
wheresoever
resid-
ing
from
any
profession,
trade,
employment
or
vocation
carried
on
in
New
South
Wales,
whether
the
same
be
carried
on
by
such
person
or
on
his
behalf
wholly
or
in
part
by
any
other
person.
"(3)
Derived
from
lands
of
the
Crown
held
under
lease
or
licence
issued
by
or
on
behalf
of
the
Crown.
"(4)
Arising
or
accruing
to
any
person
wheresoever
residing
from
any
kind
of
property
except
from
land
subject
to
land
tax
as
hereinafter
specifically
excepted,
or
from
any
other
source
whatsoever
in
New
South
Wales
not
included
in
the
preceding
subsections.’’
By
s-s.
(3)
of
s.
27
:—"No
tax
shall
be
payable
in
respect
of
income
earned
outside
the
Colony
of
New
South
Wales.’’
Two
companies
had
made
profits
from
their.
business
operations,
which
Lord
Davey,
speaking
for
the
Judicial
Committee,
divided
into
four
processes
:—‘‘
(1)
the
extraction
of
the
ore
from
the
soil;
(2)
the
conversion
of
the
crude
ore
into
a
merchantable
product,
which
is
a
manufacturing
process;
(3)
the
sale
of
the
merchantable
product;
(4)
the
receipt
of
the
moneys
arising
from
the
sale.’’
As
to
the
first,
it
was
held
that
it
came
within
the
income
derived
from
the
lands
of
the
Crown
under
s-s.
(3)
of
s.
15,
and
that
the
second,
or
manufacturing
process,
if
not
under
s-s.
(1)
at
least
fell
within
the
words
"any
other
source’’
in
s-s.
(4).
As
Lord
Davey
pointed
out
at
p.
592:—«
The
real
question,
therefore,
seems
to
be
whether
any
part
of
these
profits
were
earned
or
(to
use
another
word
also
used
in
the
Act)
produced
in
the
Colony.’’
In
determining
that
question
their
Lordships
treated
the
word
‘‘derived’’
as
synonymous
with
"‘arising
or
accruing’’,
and
a
decision
that
some
income
was
earned
in
New
South
Wales,
where
it
arose
or
accrued
from
a
trade
carried
on
therein
or
was
derived
from
lands
of
the
Crown,
or
arose
or
accrued
from
any
other
source,
can,
in
my
view
have
no
application
to
the
consideration
of
a
statute
which
imposes
a
tax
upon
"‘the
income
earned
within
the
Province.”
In
fact
the
entire
scope
of
the
British
Columbia
Act
is
quite
different
from
that
of
the
New
South
Wales
Act
and
also
from
that
of
the
Saskatchewan
Act
in
Internat’l
Harvester
Co.
of
Canada
Ltd.
v.
Provincial
Tax
Commission,
[1941]
3
D.L.R.
65.
In
that
case,
with
respect
to
a
person
residing
outside
of
Saskatchewan
but
carrying
on
business
there,
the.
Saskatchewan.
Act
imposed
a
tax
on
"‘the
net
profit
or
gain
arising
from
the
business
of
such
person
in
Saskatchewan.’’
The
reasoning
in
Lovell
&
Christmas
Ltd
v.
Commissioner
of
Taxes,
[1908]
A.C.
46,
is
illuminating
although
I
am
not
un-
mindful
of
the
difference
in
the
matters
there
under
consideration
from
those
at
bar.
At
p.
52,
it
was
stated:—"‘The
decisions
do
not
seem
to
furnish
authority
for
going
further
back,
for
the
purpose
of
taxation,
than
the
business
from
which
profits
are
directly
derived,
and
the
contracts
which
form
the
essence
of
that
business/
‘
Referring
to
this
statement
and
to
a
statement
in
Grainger
&
Son
v.
Gough,
[1896]
A.C.
325,
Isaacs
J.
in
Commissioners
of
Taxation
v.
Meeks
(1915),
19
C.L.R.
568
at
p.
588
remarks:
"'Now,
in
my
opinion,
what
is
meant
by
those
observations
is
this:
where
a
business
is
carried
on
of
which
contracts
are
‘the
essence,’
then
you
look
to
the
place
where
those
contracts
are
made.
And,
if
antecedent
operations,
whether
manufacture,
or
purchase,
or
requests,
are
not
part
of
‘the
essence’
of
the
business
carried
on,
but
preparatory
only,
then,
however
necessary
they
may
be
to
the
very
existence
of
the
business,
they
are
not
part
of
it,
in
the
sense
at
all
events
required
for
income
tax
purposes.
In
applying
the
principles
enunciated
in
Lovell’s
Case
[1908]
A.C.
46
at
p.
52
the
judgment
proceeds:—'In
the
present
case
their
Lordships
are
of
opinion
that
the
business
which
yields
the
profit
is
the
business
of
selling
goods
on
commission
in
London.’
And
it
is
pointed
out
that
the
earlier
arrangements
entered
into
in
New
Zealand
were
‘transactions
the
object
and
effect
of
which
is
to
bring
goods
from
New
Zealand
within
the
net
of
the
business
which
is
to
yield
a
profit.’
”
I
adapt,
if
I
may,
that
statement
to
the
facts
in
this
ease.
The
manufacture
in
Ontario
of
the
appellants’
goods,
however
necessary
to
the
existence
of
its
business,
does
not
earn
income.
The
goods
are
manufactured
for
the
purpose
of
sale
and
the
income
is
earned
when
the
goods
are
sold
and
all
the
income,
therefore
was
earned
within
British
Columbia.
The
appeal
should
be
dismissed
with
costs.
Appeal
allowed.
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