THORSON,
J
:—The
issue
in
this
appeal
is
whether
a
Dominion
Government
subsidy
paid
under
the
authority
of
the
Dry
Docks
Subsidies
Act,
1910,
as
amended,
constitutes
taxable
income
to
the
appellant
under
the
Income
War
Tax
Act.
There
is
no
dispute
as
to
the
facts.
The
Dry
Docks
Subsidies
Act,
1910,
Statutes
of
Canada,
1910,
chap.
17,
(now
R.S.C.
1927,
chap.
191)
intituled
‘‘An
Act
to
Encourage
the
Construction
of
Dry
Docks’?
authorized
the
payment
of
a
subsidy
"as
an
aid
to
the
construction
of
any
dry
dock’’
and
prescribed
the
conditions
under
which
it
might
be
paid.
Section
3
reads
as
follows:
6
"
3.
The
Governor
in
Council
may,
as
an
aid
to
the
construction
of
any
dry
dock,
authorize
the
payment
out
of
any
unappropriated
money
forming
part
of
the
Consolidated
Revenue
Fund
of
Canada
of
a
subsidy,
in
accordance
with
the
provisions
of
this
Act,
to
any
incorporated
company,
approved
by
the
Governor.
in
Council
as
having
the
ability
to
perform
the
work,
which
shall
enter
into
an
agreement
with
His
Majesty
to
construct
a
dry
dock
under
the
provisions
of
this
Act,
with
all
necessary
equipment,
machinery
and
plant,
for
the
reception
and
repairing
of
vessels.
2.
No
such
aid
shall
be
granted
unless
the
Governor
in
Council
is
satisfied,
upon
a
report
of
the
Minister,
based
upon
a
report
of
the
chief
engineer
of
the
Department
of
Public
Works,
and
such
other
evidence
as
he
deems
necessary,
that
such
dry
dock
is
needed
in
the
public
interest,
and
is,
as
proposed,
of
sufficient
capacity
to
meet
the
public
requirements
where
such
dry
dock
is
to
be
located.’’
Three
classes
of
dry
docks
were
contemplated
by
the
Act.
We
are
concerned
only
with
dry
docks
of
the
first
class,
which
were
for
naval
and
general
purposes
and
had
to
be
large
enough
to
receive
and
repair
therein
with
ease
and
safety
the
largest
ships
or
vessels
of
the
British
Navy
existing
at
the
time
at
which
the
contract
was
entered
into
for
the
Act
provided
that
priority
in
the
use
of
the
dry
dock
was
to
be
given
to
ships
or
vessels
in
the
British
or
Canadian
naval
service
or
owned
or
employed
by
His
Majesty.
The
subsidy
was
to
be
calculated
on
the
cost
of
the
dry
dock
as
fixed
and
determined
by
the
Governor
in
Council
before
a
subsidy
agreement
was
entered
into
and
in
the
case
of
a
dry
dock
of
the
first
class
the
cost
for
the
purposes
of
the
subsidy
calculation
was
not
to
exceed
$5,500,000.
The
amount
of
the
subsidy
payable
in
respect
of
such
dry
dock
was
specified
by
section
9
of
the
Act
as
follows:
"‘9.
The
subsidy
payable
in
respect
of
dry
docks
which
have
been
constructed
under
this
Act
of
the
first
class
shall
be
a
sum
not
exceeding
four
and
one
half
per
cent
per
annum
of
the
cost
of
the
work
as
fixed
and
determined
under
the
last
preceding
section,
half
yearly
during
a
period
not
exceeding
thirty-five
years
from
the
time
the
Governor
in
Council
has
determined
under
this
Act
that
the
work
has
been
completed.”
The
construction
of
the
dry
dock
had
to
be
in
accordance
with
plans
and
specifications
submitted
to
the
Department
of
Public
Works
and
the
work
of
construction
had
to
be
done
under
the
supervision
of
such
Department.
At
the
outbreak
of
the
last
war
there
was
no
first
class
dry
dock
on
the
Atlantic
Coast.
A
company
known
as
Norton
Griffiths
&
Company,
Limited
had
tried
to
build
one
without
any
subsidy
agreement
with
the
Government
but
had
gone
into
bankruptcy
in
1916,
having
done
work
to
the
value
of
over
$1,093,-
000.
The
appellant,
which
was
incorporated
in
June,
1916,
under
the
Dominion
Companies’
Act,
with
a
capital
of
$1,000,-
000
consisting
of
10,000
shares
of
the
par
value
of
$100
each,
then
entered
into
negotiations
with
the
Government
to
complete
the
dock
and
applied
for
a
subsidy
under
the
Act.
By
Order
in
Council,
P.C.
1532,
dated
June
22,
1918,
authority
was
granted
for
the
making
of
a
subsidy
agreement
with
the
appellant
and
on
July
18,
1918,
a
subsidy
agreement
was
entered
into
between
it
and
His
Majesty
the
King
under
which
the
appellant
agreed
to
construct
a
dry
dock
of
the
first
class
and
His
Majesty
agreed
upon
the
completion
of
the
work
to
pay
the
appellant
in
half
yearly
payments
an
annual
subsidy
of
412
per
cent
per
annum
during
35
years
upon
the
sum
of
$5,500,000,
being
the
maximum
amount
allowed
under
the
Act.
The
appellant
then
proceeded
with
the
construction
of
the
dry
dock,
having
acquired
the
work
previously
done
by
Norton
Griffiths
&
Company,
Limited
and
used
its
share
capital
for
such
purpose.
Section
9
of
the
Act
provided
for
half-yearly
payments
on
account
of
the
subsidy,
during
the
construction
of
the
dock,
at
the
rate
of
414
per
cent
per
annum
on
75%
of
the
cost
of
all
work
done
and
materials
provided
at
the
time
of
such
payment.
From
time
to
time
as
the
work
of
construction
proceeded
the
appellant
applied
for
semi-annual
payments
on
account
of
the
subsidy.
The
first
series
of
these
was
approved
by
Order
in
Council,
P.C.
39,
dated
January
26,
1920,
and
was
based
upon
the
cost
of
the
new
work
done
by
the
appellant
at
the
time
of
the
application
and
the
value
of
the
old
work
done
by
the
previous
company
and
acquired
by
the
appellant,
the
total
cost
being
calculated
at
$1,694,781.25.
The
first
semi-annual
payment
was
fixed
at
$28,599.44,
and
payment
of
70
such
semi-annual
payments
was
guaranteed.
Section
9
of
the
Act
forbade
the
issue
of
any
bonds,
debentures
or
securities
without
the
consent
in
writing
of
the
Minister
of
Public
Works,
but
provided
that
after
$1,000,000
had
been
expended
the
Minister
might
permit
the
issue
of
bonds,
debentures,
or
other
securities
and
that
any
subsidy
might
with
the
approval
of
the
Minister
be
assigned
to
a
trustee
for
the
holder
of
such
bonds,
debentures,
or
other
securities
and
that
the
subsidy
should
in
such
event
be
payable
directly
to
such
trustee.
The
appellant,
having
obtained
approval
for
the
first
series
of
semi-annual
instalments
on
account
of
the
subsidy,
proceeded
to
realize
upon
the
subsidy.
With
the
consent
of
the
Minister
it
determined
to
create
bonds
to
the
extent
of
$3,826,272.34,
bearing
interest
at
51
%
per
cent
per
annum,
in
respect
of
the
whole
of
its
assets,
including
the
dry
dock
;
appointed
Montreal
Trust
Company
as
trustee
for
the
bondholders;
and
determined
to
issue
immediately
a
first
series
of
bonds
amounting
to
$884,276.50.
On
February
23,
1920,
the
appellant
assigned
the
first
series
of
semi-annual
subsidy
payments
to
Montreal
Trust
Company
as
trustee
for
the
bondholders
as
security
for
the
first
series
of
bonds.
The
Minister
of
Public
Works
consented
in
writing
to
the
creation
of
the
whole
bond
issue,
the
immediate
issue
of
the
first
series
of
bonds
and
the
assignment
of
the
first
series
of
semi-annual
subsidy
payments.
On
the
same
date
the
appellant
entered
into
a
trust
deed
with
Montreal
Trust
Company
as
trustee
for
the
bondholders.
The
bonds
issued
were
payable
by
instalments
and
were
so
arranged
that
the
aggregate
amount
of
principal
and
interest
falling
due
in
each
half
year
was
exactly
equal
to
the
semi-annual
payment
of
$28,599.44.
A
similar
procedure
was
followed
on
three
other
occasions.
In
each
case
an
application
was
made
by
the
appellant
for
semiannual
payments
on
account
of
the
subsidy,
based
on
the
cost
of
construction
done
since
the
previous
payments
were
authorized;
the
semi-annual
payments
were
approved
by
Order
in
Council;
as
they
were
approved,
a
further
series
of
bonds
was
issued;
and
the
semi-annual
payments
on
account
of
the
subsidy
were
assigned
to
the
trustee
as
security
for
the
series
of
bonds
issued.
In
each
case
the
approval
and
consent
of
the
Minister
of
Public
Works
was
given.
The
semi-annual
subsidy
payments
were
always
exactly
equal
to
the
semi-annual
payments
of
principal
and
interest
of
the
series
of
bonds
for
which
they
were
security.
After
the
trustee
for
the
bondholders
had
been
appointed
the
payments
of
semi-annual
instalments
on
account
of
the
subsidy
were,
on
their
assignment
to
the
trustee,
ordered
to
be
paid
directly
to
the
trustee
and
payment
of
them
for
the
35
year
period
was
guaranteed
to
the
trustee.
The
construction
of
the
dry
dock
was
completed
on
June
30,
1924,
and
by
Order
in
Council,
P.C.
1199,
dated
July
11,
1924,
the
fifth
and
final
series
of
semi-annual
payments
on
account
of
the
subsidy
was
approved.
This
authorization
differed
from
the
previous
ones
in
that
it
was
not
based
upon
a
progress
report,
nor
on
75
per
cent
of
cost,
but
upon
a
final
report
that
the
dock
had
been
completed
and
the
total
cost
as
fixed.
The
amount
finally
approved
was
a
semi-annual
payment
of
$24,520.27,
and
represented
the
amount
remaining
to
be
paid
of
the
whole
subsidy,
namely
$247,500
per
year
in
semi-annual
payments
Of
$123,750,
less
the
four
payments
already
approved.
The
fifth
and
final
series
of
bonds,
exhausting
the
whole
bond
issue,
was
then
issued
and
the
final
semi-annual
payments
were
assigned
ta
the
trustee
as
security
for
the
final
series
of
bonds.
Order
in
Council
P.C.
1199
(filed
as
Exhibit
12)
recites
in
detail
the
whole
history
of
the
subsidy
arrangements
made
with
the
appellant
and
the
trustee
for
the
bondholders.
The
final
result
was
that
the
total
annual
subsidy
of
$247,500,
being
414
per
cent
per
annum
of
the
cost
of
the
dock,
fixed
at
$5,500,000
for
calculation
of
the
subsidy,
was
payable
in
semiannual
instalments
of
$123,750
each
for
a
period
of
35
years.
The
whole
subsidy
had
been
assigned
to
Montreal
Trust
Company
as
trustee
for
the
bondholders
as
security
for
the
bonds
totalling
for
the
five
series
issued
the
sum
of
$3,826,277.34.
The
annual
payment
of
$247,500
was
exactly
sufficient
to
pay
the
interest
and
the
instalments
of
principal
that
fell
due
on
the
bonds
each
year,
so
that
when
the
subsidy
payments
had
all
been
made,
all
the
bonds
would
be
fullly
paid
both
as
to
interest
and
principal.
Subsequently,
in
1934,
and
again
in
1936,
the
appellant,
with
the
approval
and
consent
of
the
Minister,
re-arranged
its
bond
issues,
whereby
it
put
out
larger
issues
of
bonds
at
lower
rates
of
interest.
These
two
refundings,
in
my
opinion,
cannot
alter
the
quality
of
the
subsidy
payments
made
and
received
or
affect
in
any
way
the
questions
involved
in
this
appeal.
Up
to
1939
the
appellant
had
taken
into
its
annual
profit
or
loss
account
the
full
amount
of
the
two
semi-annual
subsidy
payments
which
had
been
made
direct
to
Montreal
Trust
Company
as
trustee
for
the
bondholders
and
had
charged
against
it
such
amounts
as
the
trustee
had
applied
each
year
in
payment
of
interest
on
the
bonds,
and
had
paid
income
tax
on
the
balance,
namely,
the
amounts
which
the
trustee
had
applied
in
payment
of
the
instalments
of
principal
of
the
bonds
as
they
fell
due.
In
its
income
tax
return
for
1939,
the
appellant
had
included
as
income—Dominion
Government
Subsidy
applicable
to
Retirement
of
Bonds—$145,761.78.
The
practice
followed
by
the
appellant
had
not
seriously
affected
it
in
the
earlier
years
for
the
reason
that
the
amounts
of
principal
that
fell
due
on
the
bonds
were
relatively
small
as
compared
with
the
payments
of
interest,
which
had
been!
allowed
by
way
of
deduction,
and
the
appellant
had
also
received
substantial
allowances
for
depreciation,
a
factor
which
also
prevented
the
matter
from
coming
to
a
head
earlier,
but
as
the
payments
of
principal
increased
and
those
for
interest
decreased
the
question
became
one
of
grave
importance
to
the
appellant
and
in
1940
it
called
in
the
services
of
a
firm
of
chartered
accountants,
who
advised
it
that
it
had
been
in
error
in
ever
taking
any
part
of
the
subsidy
payments
into
its
accounts
as
income
at
all,
with
the
result
that
when
the
appellant
received
its
assessment
notice,
dated
December
29,
1943,
it
took
the
ground
that
the
item
of
$145,761.78,
which
represented
the
amount
applied
by
Montreal
Trust
Company
in
payment
of
the
instalments
of
principal
due
on
the
bonds,
was
wrongfully
included
in
its
Income
tax
return
for
1939
and
appealed
from
the
assessment
on
the
grounds
that
the
Government
subsidy
of
$247,500
was
a
capital
payment
and
did
not
constitute
taxable
income
and
that
in
any
event
it
had
never
received
it.
The
decision
of
the
Minister
of
National
Revenue
was
that
the
subsidy
payments
constituted
income
directly
or
indirectly
received
by
the
appellant
within
the
meaning
of
the
Income
War
Tax
Act
and
the
assessment
was
affirmed.
From
this
decision
an
appeal
to
this
Court
is
taken.
The
appeal
raises
two
issues,
one,
whether
the
Dominion
Government
subsidy
paid
under
the
authority
of
the
Dry
Dock
Subsidies
Act,
1910,
was
income,
and
the
other,
whether
it
was
ever
received
directly
or
indirectly
by
the
appellant.
The
determination
of
the
latter
issue
will
be
necessary
only
if
it
be
held
that
the
subsidy
was
income.
The
fact
that
an
amount
is
described
as
a
Government
subsidy
does
not
of
itself
determine
its
character
in
the
hands
of
the
recipient
for
taxation
purposes.
In
each
ease
the
true
character
of
the
subsidy
must
be
ascertained
and
in
so
doing
the
purpose
for
which
it
was
granted
may
properly
be
considered.
There
are
no
Canadian
decisions
on
the
subject.
Counsel
for
the
respondent
relied
entirely
upon
two
English
decisions,
Blake
v.
Imperial
Brazilian
Railway
(1884),
2
T.C.
58,
and
H.R.H.
The
Nizam
State
Railway
Co.
v.
Wyatt
(1890),
24
Q.B.D.
548,
in
support
of
his
contention
that
the
annual
subsidy
payments
now
under
discussion
were
income
to
the
appellant
and
taxable
under
the
Income
War
Tax
Act.
In
Blake
v.
Imperial
Brazilian
Railway
(supra),
the
Company
was
formed
for
the
purpose
of
constructing
and
working
a
rail-
way
in
Brazil,
with
a
share
capital
of
£500,000,
of
which
£250,000
was
issued
as
Preference
shares.
The
Company
also
issued
£368,300
in
debentures.
The
Brazilian
Government
guaranteed
7
per
cent
per
annum
for
30
years
on
the
sum
of
£618,300.
The
debentures
carried
interest
at
512
per
cent
per
annum
for
30
years.
Under
a
deed
of
trust
between
the
Company
and
the
trustees
for
the
debenture
holders
the
debentures
were
to
be
redeemed
by
an
annual
sinking
fund
extending
over
30
years,
the
difference
between
the
514
per
cent
paid
to
the
debenture
holders
and
the
7
per
cent
received
from
the
Brazilian
Government
being
applied
to
the
sinking
fund.
The
Company
contended
that.
the
amount
thus
set
aside
for
the
purpose
of
the
sinking
fund
was
not
subject
to
income
tax.
The
English
Court
of
Appeal
unanimously
held
that
the
7
per
cent
per
annum
received
by
the
Company
had
been
received
as
interest.
Brett
M.R.
held
that
it
was
interest
upon
money
paid
or
found
by
the
Company
for
the
Government.
Cotton
L.J.
held
that
it
was
not
a
contribution
towards
the
cost
of
constructing
the
railway
but
was
paid
as
interest
on
a
certain
sum
and
"‘not
as
a
sum
which
was
to
go
towards
the
providing
of
capital
which
was
to
be
expended,
or
as
a
sum
to
be
expended
in
the
construction
of
the
line.
‘
‘
Lindley
L.J.
was
of
the
same
opinion.
This
case
was
followed
in
H.R.H.
The
Nizam
State
Railway
Co.
v.
Wyatt
(supra).
In
that
case,
the
facts
were
that
the
Company
was
formed
for
the
purpose
of
making
and
carrying
out
an
agreement
with
the
Government
of
the
Nizam
for
the
acquisition,
extension
and
working
by
the
Company
of
a
certain
railway
in
India.
The
capital
of
the
Company
was
to
be
£2,000,000,
divided
into
100,000
shares
of
£20
each,
and
debentures
to
the
extent
of
£2,500,000
bearing
interest
at
4
per
cent
per
annum
were
to
be
issued.
The
Government
of
the
Nizam
agreed
for
the
period
of
20
years
to
pay
to
the
Company
an
an-
anuity
equal
to
5
per
cent
per
annum
on
the
issued
capital
of
the
Company,
both
share
and
debenture,
not
exceeding
£4,500,000,
the
Company
being
bound
to
apply
the
same
in
payment
of
interest
at
5
per
cent
per
annum
on
the
paid
up
share
capital,
in
payment
of
the
debenture
interest
at
4
per
cent
per
annum,
and
to
pay
the
remainder,
being
1
per
cent
on
the
debenture
capital,
to
trustees
to
be
invested
and
form
a
sinking
fund
for
the
redemption
of
the
debenture
capital.
The
Company
received
the
annuity,
paid
the
1
per
cent
balance
to
the
trustees
and
claimed
that
this
amount
was
not
subject
to
income
tax.
Counsel
for
the
Company
sought
to
distinguish
the
case
from
Blake
v.
Imperial
Brazilian
Railway
(supra)
on
the
ground
that
in
that
case
the
Company
had
not
been
under
any
obliga-
tion
to
the
Government
to
apply
any
portion
of
the
7
per
cent
received
from
it
to
a
sinking
fund
but
that
in
this
case
the
Company
was
obliged
to
pay
1
per
cent
of
the
interest
on
the
debenture
capital
to
trustees
for
sinking
fund
purposes.
The
Court
held
that
Blake
v.
Brazilian
Railway
(supra)
governed
the
ease,
that
the
whole
amount
of
the
annuity
was
subject
to
income
tax,
and
that
the
company
was
not
entitled
to
any
deduction
in
respect
of
the
1
per
cent
paid
to
the
trustee
for
sinking
fund
purposes,
even
alhough
it
was
under
an
obligation
to
make
such
payment.
On
the
strength
of
these
two
decisions
counsel
for
the
respondent
contended
that
the
subsidy
payments
in
this
case
constituted
taxable
income
to
the
appellant.
Counsel
for
the
appellant
took
the
position
that
the
subsidy
payments
were
not
income
at
all
but
capital
receipts.
His
contention
was
that
the
only
portion
of
the
definition
of
taxable
income
contained
in
Section
3
of
the
Income
War
Tax
Act
under
which
the
appellant
could
possibly
be
taxed
was
that
which
referred
to
‘‘annual
net
profit
or
gain
or
gratiuity’’
as
being
""
profits
from
a
trade
or
commercial
or
financial
or
other
business
or
calling,
directly
or
indirectly
received
by
a
person
from
any
office
or
employment,
or
from
any
profession
or
calling,
or
from
any
trade,
manufacture
or
business,
‘
‘
and
that
the
annual
subsidy
payments
were
not
trade
or
business
gains
or
profits
or
trade
or
business
receipts
at
all.
He
relied
upon
the
decision
of
the
House
of
Lords
in
The
Seaham
Harbour
Dock
Co.
v.
Crook
(1931),
16
T.C.
333
as
conclusive
in
his
favor.
In
that
ease,
the
Company
contemplated
an
extension
to
its
docks,
obtained
an
Act
of
Parliament
enabling
it
to
do
so
and
commenced
work
on
the
extension,
the
estimated
cost
of
which
was
£152,000.
The
Act
of
Parliament.
allowed
the
Company
to
raise
by
debenture
issue
only
the
sum
of
£75,000,
and
debentures
to
this
amount
were
issued.
Of
the
balance
required
for
the
extension,
£75,000
was
obtained
by
unsecured
loans
from
other
sources.
This
left
a
small
amount
of
capital
still
to
be
found.
On
September
10,
1923,
the
Company
applied
to
the
Unemployment
Grants
Committee
asking
for
assistance
in
carrying
through
the
work
of
extending
the
docks
and
on
November
6,
1923,
the
Commitee
replied
that
they
were
prepared
to
sanction
a
grant
"‘equivalent
to
half
the
interest
at
a
rate
not
exceeding
an
average
up
to
51
per
cent
per
annum
on
approved
expenditure
met
out
of
loan
(not
exceeding
£152,000)
for
a
period
of
two
years
from
the
date
or
dates
on
which
the
payments
are
made.
‘
‘
Applications
for
payment
of
the
grant
in
respect
of
the
work
done,
as
certified
by
the
Engineer
and
auditors
of
the
Company
in
conformity
with
the
letter
from
the
Unemployment
Grants
Committee,
were
made
periodically
by
the
Company
and
instalments
of
the
grant
were
received
periodically
by
it
during
the
years
1924
to
1928,
totalling
altogether
£7,500.
The
instalments
of
the
grant
were
always
credited
to
revenue
in
the
accounts
of
the
Company.
On
being
assessed
for
income
tax
in
respect
of
the
grants
the
Company
appealed
on
the
grounds
that
the
grant
was
capital
;
that
it
was
not
made
for
the
purpose
of
meeting
interest
but
in
respect
of
expenditure
and
for
the
purpose
of
helping
the
Company
through
with
its
cost
of
construction;
that
the
term
"equivalent
to
half
the
interest’’
was
only
a
method
of
calculation
for
arriving
at
the
amount
of
grant
to
be
paid;
and
that
there
was
no
trading
and
no
revenue
at
that
time
and
that
there
were
no
profits
or
gains
in
carrying
on
a
business
or
trade
and,
as
no
trade
was
being
carried
on,
that
there
could
be
no
revenue
and
that
the
grant
was
a
capital
payment
only
and
not
taxable
income.
The
Commissioners,
before
whom
these
arguments
were
made,
held
that
the
grant
was
revenue
and
taxable
income
of
the
Company.
An
appeal
from
their
decision
was
dismissed
by
Rowlatt
J.
The
Court
of
Appeal,
however,
unanimously
reversed
the
decision
of
Rowlatt
J.
and
the
House
of
Lords
dismissed
an
appeal
from
the
judgment
of
the
Court
of
Appeal.
Lord
Hanworth
M.R.
took
the
view
that
an
application
had
been
made
by
the
Company,
which
was
slightly
short
of
capital,
for
assistance
in
order
to
carry
on
the
work
and
that
its
request
had
been
granted.
The
amount
of
the
grant
was
arrived
at
by
the
formula
indicated
by
the
Committee,
and
was
paid
according
to
the
formula
for
the
purpose
of
the
dock
extension.
This
was
a
capital
outlay
by
the
Company.
He
agreed
with
the.
arguments
advanced
on
behalf
of
the
Company
before
the
Com-
missioners.
Lord
Hanworth
M.R.
distinguished
the
cases
previously
referred
to.
With
respect
to
Blake
v.
Imperial
Brazilian
Railway
(supra),
his
view
was
that
all
that
it
decided
was,
that
when
the
Company
received
7
per
cent
under
the
guarantee
to
it
it
received
such
sum
as
interest,
and
the
fact
that
it
devoted
a
portion
of
it
to
a
sinking
fund
for
the
repayment
of
capital
did
not
alter
its
original
character;
that
this
was
merely
in
accordance
with
the
principle
of
Mersey
Docks
and
Harbour
Board
v.
Lucas
(1883),
2
T.C.
25
that
the
application
which
the
recipient
makes
of
a
sum
has
nothing
to
do
with
the
question
of
whether
it
was
at
the
time
of
its
receipt
a
taxable
profit
or
gain
to
him.
Lord
Hanworth
took
a
similar
view
with
regard
to
the
Nizam
State
Railway
Co.
Case
(supra)
and
concluded
his
opinion
with
the
view
that
the
sums
were
paid
in
order
"‘to
advance
a
capital
expenditure
to
be
made
by
the
Seaham
Har-
bour
Dock
Company’’
and
could
not
be
said
to
be
sums
received
in
respect
of
trade
and
so
taxable.
With
these
views
the
other
judges
of
the
Court
of
Appeal
agreed.
While
the
House
of
Lords
unanimously
dismissed
an
appeal
from
the
judgment
of
the
Court
of
Appeal,
and
agreed
that
the
grant
was
not
a
trade
receipt
or
an
item
of
profit
or
gain
from
trade,
its
decision
is
of
particular
importance
by
reason
of
the
special
grounds
upon
which
it
is
based.
The
House
of
Lords
was
not
concerned
with
whether
the
sums
received
by
the
Dock
Company
were
applied
for
capital
or
revenue
purposes,
but
looked
rather
at
the
purpose
of
the
grant
in
order
to
determine
whether
the
amount
of
it
should
be
included
in
taxable
revenue.
Lord
Buckmaster
after
stating
"‘most
unhesitatingly’’
that
the
grant
was
not
a
trade
receipt,
went
on
to
say,
at
page
353
:
"
"
It
appears
to
me
that
it
was
nothing
whatever
of
the
kind.
It
was
a
grant
which
was
made
by
a
government
department
with
the
idea
that
by
its
use
men
might
be
kept
in
employment,
and
it
was
paid
to
and
received
by
the
Dock
Company
without
any
special
allocation
to
any
particular
part
of
their
property,
either
capital
or
revenue,
and
was
simply
to
enable
them
to
carry
out
the
work
upon
which
they
were
engaged,
with
the
idea
that
by
so
doing
people
might
be
employed.
I
find
myself
quite
unable
to
see
that
it
was
a
trade
receipt,
or
that
it
bore
any
resemblance
to
a
trade
receipt.
It
appears
to
me
to
have
been
simply
a
grant
made
by
the
Government
for
the
purposes
which
I
have
mentioned,
and
in
those
circumstances
cannot
be
included
in
revenue
for
the
purposes
of
the
tax.
‘
‘
Lord
Atkin
was
of
the
same
opinion
but
was
more
explicit.
He
pointed
out
that
the
sum
was
paid
under
the
authority
of
the
Appropriation
Act
of
1924,
which
authorized
grants
"‘for
assistance
in
carrying
out
approved
schemes
of
useful
work
to
relieve
unemployment’’,
and
after
certain
remarks
to
which
reference
will
be
made
later,
he
said,
at
page
353
:
"‘It
appears
to
me
that
when
these
sums
were
granted
and
when
they
were
received,
they
were
received
by
the
appropriate
body
not
as
part
of
their
profits
or
gains
or
as
a
sum
which
went
to
make
up
the
profits
or
gains
of
their
trade.
It.
is
a
receipt
which
is
given
for
the
express
purpose
which
is
named
and
it
has
nothing
to
do
with
their
trade
in
the
sense
in
which
you
are
considering
the
profits
or
gains
of
the
trade.
It
appears
to
me,
with
respect,
to
be
quite
irrelevant
whether
the
money,
when
received,
is
applied
for
capital
purposes
or
is
applied
for
revenue
purposes;
in
neither
case
is
the
money
properly
said
to
be
brought
into
a
computation
of
the
profits
or
gains
of
the
trade.”
Lord
Macmillan
considered
it
sufficient
to
say
that
the
moneys
received
were
not
profits
or
gains
of
the
trade.
The
ratio
of
the
decision,
in
my
opinion,
is
that
the
grant
was
made
under
statutory
authority
for
unemployment
relief
purposes;
that
such
purposes
had
nothing
to
do
with
the
trade
of
the
Dock
Company
;
and
that,
since
the
amount
of
the
grant
was
received
for
the
purposes
for
which
it
was
paid,
it
could
not
be
regarded
as
a
trade
receipt
or
revenue,
or
as
an
item
of
trade
profit
or
gain.
It
was
the
purpose
of
the
statute,
under
the
authority
of
which
the
grant
was
paid,
that
determined
its
non-taxable
character
in
the
hands
of
the
recipient.
In
my
opinion,
the
principles
underlying
this
decision
are
applicable
to
the
subsidy
payments
under
review.
The
present
case
is
quite
different
from
the
cases
in
which
a
subsidy
pay-
ment
has
been
held
to
be
taxable.
An
illustration
of
an
income
subsidy
is
to
be
found
in
Charles
Brown
&
Company
v.
Commissioners
of
Inland
Revenue
(1930),
12
T.C.
1256.
There
the
Company
carried
on
its
business
as
a
miller
under
the
control
of
the
Food
Controller
from
1917
to
1921
and
was
compelled
to
buy
and
sell
at
prices
fixed
by
the
Controller.
In
lieu
of
making
an
application
before
the
Defence
of
the
Realm
(Losses)
Commission
for
compensation
for
losses
sustained
through
the
exercise
of
the
Crown’s
powers,
the
Company
entered
into
an
agreement
with
the
controller
under
which
a
standard
profit
was
fixed.
Under
this
agreement,
if
the
profits
exceeded
the
standard
the
Company
was
to
pay
the
excess
to
the
Controller,
but
if
the
profits
fell
short
of
the
standard
the
deficiency
was
to
be
paid
by
the
Controller
to
the
Company.
In
respect
of
two
periods
of
account
the
Company
paid
excesses
to
the
Controller
but
in
respect
of
four
periods
it
received
payments
of
the
amounts
by
which
its
profits
fell
short
of
the
standard.
The
Company
contended
that
such
amounts
were
not
part
of
its
trading
receipts
but
were
a
compensation
for
loss
or
damage
and
were
not
subject
to
excess
profits
duty.
Rowlatt
J.
held
that
the
Company
received
the
amounts
because
of
continuing
the
operations
of
its
trade
and
with
this
view
the
Court
of
Appeal
unanimously
agreed.
The
Government
had
given
a
guarantee
of
a
standard
profit
and
the
amounts
paid
by
the
Controller
were
received
by
the
Company
as
trade
profits,
although
they
came
from
the
Crown,
just
as
much
as
if
they
had
come
from
customers.
Another
illustration
of
an
income
subsidy
is
to
be
found
in
Tincolnshire
Sugar
Company,
Limited
v.
Smart,
[1937]
A.C.
697.
In
that
case
the
Company
carried
on
business
as
manufacturers
of
sugar
from
beet
grown
in
Great
Britain.
It
had
received
subsidies
under
the
British
Sugar
(Subsidy)
Act,
1925,
but
in
1931,
in
view
of
the
fall
in
the
price
of
sugar,
further
state
aid
was
given
to
companies
which
would
otherwise
have
experienced
difficulty
in
paying
the
prices
contracted
to
be
paid
to
beet
growers.
This
was
authorized
by
the
British
Sugar
Industry
(Assistance)
Act,
1931,
whereby
""
advances’’
were
to
be
made
during
the
period
of
one
year,
with
provision
for
repayment
under
certain
circumstances.
The
Company
had
received
advances
under
this
Act,
without
any
liability
to
repay
having
arisen,
but
contended
that
under
the
Act
the
amounts
received
were
not
trading
receipts
in
that
year
but
loans.
The
Commissioners
and
Findlay
J.
upheld
that
view,
but
it
was
unanimously
reversed
by
the
Court
of
Appeal.
The
House
of
Lords
unanimously
agreed
with
the
Court
of
Appeal.
Lord
Macmillan
held
that
the
advances
were
made
to
enable
the
Company
to
meet
its
trading
obligations
and
were
intended
to
supplement
its
trading
receipts,
and
were
properly
taken
into
computation
in.
arriving
at
the
Company’s
profits
and
gains.
With
this
view
the
other
members
of
the
House
of
Lords
concurred.
Similar
instances
of
income
subsidies
are
to
be
found
in
such
United
States
decisions
as
Texas
&
Pacific
Ry.
Co
wv.
United
States,
286
U.S.
285,
where
the
Supreme
Court
of
the
United
States
held
that
the
amount
paid
to
a
railroad
by
the
Government
under
the
Transportation
Act
to
make
up
the
minimum
of
operating
income
guaranteed
for
the
six
months
following
the
relinquishment
of
federal
control
was
taxable
income,
and
Helvering
v.
Claiborne-Annapolis
Ferry
Co.,
93
Fed.
(2nd)
874,
where
the
Circuit
Court
of
Appeals
held
that
an
amount
paid
on
a
mileage
basis
by
the
State
of
Maryland
to
the
Company
for
the
maintenance
of
a
ferry
was
as
much
an
earning
by
the
ferry
company
as
were
the
tolls
collected
from
vehicles
and
passengers.
These
two
United
States
decisions
are
to
be
distinguished
from
Hdwards
v.
Cuba
Railroad
Company,
268
U.S.
628,
where
Mr.
Justice
Butler
of
the
Supreme
Court
of
the
United
States
held
that
certain
subsidy
payments
made
by
the
Republic
of
Cuba
to
the
Company
to
promote
the
construction
of
railroads
in
Cuba
and
in
consideration
also
of
reduced
rates
to
the
publie
as
well
as
reduced
rates
and
other
privileges
for
the
Government,
the
payments
being
on
the
basis
of
mileage
actually
constructed,
were
for
the
purpose
of
reimbursing
the
Company
for
capital
expenditures
and
were
not
profits
or
gains
from
the
use
or
operation
of
the
railway
and
did
not
constitute
taxable
income.
The
subsidy
payments
in
this
ease
clearly
fall
outside
the
ambit
of
the
cases
which
I
have
cited
as
illustrations
or
instances
of
income
subsidies,
such
as
amount
to
a
guarantee
of
profits
or
earnings
or
result
in
supplementary
or
additional
revenues.
Such
subsidies
come
into
the
hands
of
the
recipient
in
the
course
of
trade
or
business
operations
or
because
of
them
and,
being
operational
revenues,
may
properly
be
described
as
income
subsidies
subject
to
tax.
The
situation
in
the
present
case
is
quite
different.
The
appellant
was
not
entitled
to
receive
nor
did
it
receive
the
subsidy
in
the
course
of
its
trade
or
business
operations
or
because
of
them.
The
subsidy
was
not
a
trade
or
business
receipt
or
revenue
or
an
item
of
trade
or
buiness
profit
or
gain.
There
was
no
guarantee
of
trade
or
business
profits
or
earnings
nor
was
the
subsidy
given
to
supplement
or
inerease
the
operational
revenues.
of
the
appellant.
Indeed,
the
subsidy
payments
had
nothing
to
do
with
the
trade
or
business
operations
of
the
appellant
at
all.
It
became
entitled
to
them
immediately
upon
construction
of
the
dry
dock
pursuant
to
the
agreement
authorized
by
the
Act.
At
that
time,
it
was
not
in
the
business
of
dry
dock
construction
and
was
not
yet
engaged
in
the
business
of
operating
the
dry
dock.
The
appellant,
moreover,
would
continue
to
be
entitled
to
the
subsidy
payments
even
if
it
never
operated
the
dry
dock
at
all.
While
it
is
true
that
section
14
of
the
Act
requires
that
the
agreement
shall
include
a
provision
that
the
dock
shall,
after
completion,
be
kept
in
repair
and
working
order
by
the
company,
default
on
the
part
of
the
company
in
this
respect
does
not
in
any
way
affect
the
payment
of
the
subsidy.
This
is
clear
from
sections
15
and
16
which
provide
for
expropriation.
and
operation
of
the
dry
dock
by
the
Government
if
it
appears
that
it
is
not
in
a
condition
of
repair.
It
was
the
construction
of
the
dock
and
not
its
operation
that
entitled
he
appellant
to
the
subsidy.
The
subsidy
was
given
as
an
aid
to
the
construction
of
the
dry
dock,
and
not
as
an
aid
to
its
operation;
it
was
not
an
operational
subsidy
at
all
nor
in
any
way
the
kind
of
subsidy
held
to
be
taxable
in
the
income
subsidy
cases,
Nor
is
the
case
governed
by
the
Blake
Case
(supra)
and
the
Nizam
Case
(supra),
upon
which
counsel
for
the
respondent
entirely
relied.
It
may
be
observed,
however,
that,
if
these
cases
did
apply,
then
the
whole
of
the
annual
subsidy
of
$247,500,
and
not
merely
that
portion
of
it
that
was
applied
by
the
trustee
in
payment
of
the
instalments
of
principal,
is
subject
to
income
tax.
It
cannot
have
the
character
of
being
partly
income
and
partly
not
income.
It
is
all
subject
to
tax
or
none
of
it
is.
What
is
done
with
it
afterwards
by
the
recipient
cannot
affect
its
taxable
or
non-taxable
character
at
the
time
of
its
receipt.
This
fundamental
principle
of
income
tax
law
was
recognized
in
the
Blake
Case
(supra)
and
the
Nizam
Case
(supra).
In
these
cases
the
companies
claimed
exemption
from
income
tax
only
in
respect
of
that
portion
of
the
guarantee
which
the
company
had
applied
to
sinking
fund
purposes,
and
no
question
whatever
was
raised
as
to
the
taxability
of
the
remainder.
That
was
taken
for
oranted.
The
essence
of
the
decision
in
each
case,
as
pointed
out
by
Lord
Hanworth
in
The
Seaham
Dock
Co.
Case
(supra,)
was
that
the
guarantee
was
received
as
interest
and
the
subsequent
application
of
part
of
it
to
a
capital
purpose
such
as
a
sinking
fund
could
not
change
its
character.
The
whole
amount
received
by
the
company
in
each
case
was
held
to
have
been
received
as
interest.
In
the
Blake
Case
(supra)
the
guarantee
was
7
per
cent
per
annum
on
the
total
of
the
issued
share
capital
and
the
issued
debentures
and
was
subject
to
reduction
to
the
extent
that
any
of
the
money
deposited
in
the
bank
earned
bank
interest
and
in
the
Nizam
Case
(supra)
the
annuity
was
5
per
cent
per
annum
on
the
issued
capital
of
the
company,
both
share
and
debenture.
In
the
present
case
the
subsidy
was
not
based
upon
share
or
debenture
capital
at
all.
There
is
no
reference
in
the
Act,
or
in
the
subsidy
agreement,
or
in
any
of
the
orders
in
council,
to
share
or
debenture
capital.
There
was
no
guarantee
of
interest
or
a
return
on
capital
found
or
invested.
I
am
quite
unable
to
see
how
the
receipt
of
the
subsidy
could
be
regarded
as
a
receipt
of
interest.
Section
8
of
the
Act
makes
it
clear
that
the
amount
of
the
subsidy
is
to
be
calculated
on
the
cost
of
the
dry
dock
as
fixed
by
the
Governor
in
Council
and
the
evidence
shows
that
when
each
of
the
five
series
of
subsidy
payments
was
authorized,
the
amount
approved
for
payment
was
calculated
upon
the
cost
of
construction
done
up
to
the
time
of
the
application
for
payment.
If
the
subsidy
had
been
paid
in
a
lump
sum
the
amount
of
it
certainly
would
not
have
been
interest
but
a
capital
contribution
and
a
capital
receipt
by
the
appellant
rather
than
a
receipt
of
income.
The
reason
for
paying
the
subsidy
in
annual
instalments
over
a
period
of
years
rather
than
in
a
lump
sum
was
no
doubt
due
to
considerations
of
government
policy
and
convenience
and
the
annuality
of
the
pay-
mets
cannot
affect
their
character.
Nor
does
the
fact
that
section
9
of
the
Act
describes
the
subsidy
as
a
‘‘sum
not
exceeding
four
and
one-half
per
cent
per
annum
of
the
cost
of
the
work
.
.
.
.
half
yearly
during
a
period
not
exceeding
thirty-five
years”
make
the
subsidy
a
payment
or
receipt
of
interest.
The
section
makes
it
quite
clear
that
it
is
not
interest
on
a
sum
that
is
payable
;
it
is
a
sum
that
is
payable,
a
fixed
amount
calculated
on
the
cost
of
the
work;
the
formula
used
merely
determines
the
amount
of
the
sum
payable
by
instalments
over
a
period
of
years.
The
fact
that
it
is
payable
by
instalments
does
not
change
its
character.
A
similar
view
was
taken
of
the
formula
used
by
the
Unemployment
Grants
Committee
in
The
Seaham
Dock
Co.
Case
(supra).
The
formula
merely
projects
the
amount
that
would
be
payable
in
a
lump
sum
into
the
amounts
of
the
instalments
that
are
to
be
paid.
That
is
quite
different
from
a
guarantee
of
interest
or
return
on
share
or
debenture
capital.
The
subsidy
was
a
construction
subsidy
based
on
the
cost
of
the
dock
as
fixed.
Counsel
for
the
respondent
sought
to
distinguish
the
case
from
The
Seaham
Dock
Co.
Case
(supra)
by
contending
that
the
subsidy
was
not
to
go
into
the
construction
of
the
dock
but
was
payable
in
respect
of
what
had
been
done
rather
than
what
was
to
be
done.
It
is
quite
clear
that
the
subsidy
was
a
construction
subsidy
and
equally
clear
that
the
expenditure
made
by
the
appellant
in
constructing
the
dock
was
a
capital
expenditure.
That
the
subsidy
was
payable
in
respect
of
a
capital
expenditure
is,
I
think,
made
clear
by
section
9
of
the
Act
which
refers
to
the
subsidy
as
being
"payable
in
respect
of
dry
docks
which
have
been
constructed
under
this
Act’’.
If
the
subsidy
was,
therefore,
payable
and,
of
course,
likewise
received
in
respect
of
a
capital
expenditure
it
seems
immaterial
to
me
whether
the
subsidy
payments
were
made
"‘to
advance
a
capital
expenditure
to
be
made
by
the
company’’,
to
use
the
words
of
Lord
Han-
worth
in
The
Seaham
Harbour
Dock
Co.
Case
(supra),
or
"‘for
the
purpose
of
re-imbursing’’
the
appellant
‘for
capital
expenditures”,
in
the
language
of
Mr.
Justice
Butler
in
Edwards
v.
Cuba
Railroad
Company
(supra).
As
a
matter
of
fact
both
purposes
are
involved
in
the
present
case.
It
was
only
after
the
first
series
of
semi-annual
instalments
on
account
of
the
subsidy
was
approved
that
bonds
were
permitted
to
be
issued.
The
first
series
of
bonds
provided
the
capital
which
enabled
the
appellant
to
continue
with
the
construction.
This
was
intended
by
the
Act
with
its
provisions
authorizing
payments
on
account
of
the
subsidy
during
construction,
the
issue
of
bonds
only
with
the
consent
of
the
Minister
of
Public
Works
and
the
assignment
of
the
subsidy
payments
as
security
for
the
bonds
so
issued.
In
that
sense
the
first
series
of
payments
on
account
of
the
subsidy
were
paid
to
advance
a
capital
expenditure
by
the
appellant.
The
same
might
be
said
of
the
second,
third
and
fourth
series
of
payments,
but
it
could
not
be
said
of
the
fifth
and
last
series
of
payments,
for
when
they
were
authorized
the
dock
was
fully
completed.
The
final
payments,
therefore,
may
more
properly
be
described
as
having
been
made
for
the
purpose
of
re-imburs-
ing
the
appellant
for
capital
expenditure
made
by
it,
for
it
will
be
remembered
that
the
appellant
used
its
own
share
capital
before
any
payment
on
account
of
the
subsidy
was
authorized
to
be
paid.
The
subsidy
was
a
fixed
sum
payable
by
instalments,
calculated
on
the
cost
of
the
dock
as
fixed
by
the
Governor
in
Council
and
was
paid
and
received
in
respect
of
its
construction
and
as
an
aid
to
its
construction.
It
was
in
no
sense
paid
or
received
as
interest
and,
in
my
judgment,
is
clearly
distinguishable
from
the
guarantee
on
share
and
debenture
capital
held
to
be
taxable
in
the
Blake
Case
(supra)
and
in
the
Nizam
Case
(supra).
Moreover,
the
case,
in
my
view,
comes
within
the
principles
enunciated
by
the
House
of
Lords
in
The
Seaham
Dock
Co.
Case
(supra).
As
I
read
the
reasons
of
Lord
Buckmaster
and
Lord
Atkin
in
that
case,
they
support
the
view
that,
when
a
payment
is
made
under
the
authority
of
an
Act
of
Parliament,
the
statutory
purpose
for
which
such
payment
is
authorized
may
be
considered
in
determining
whether
the
payment
is
to
be
regarded
as
an
item
of
annual
net
profit
or
gain
or
gratuity
and
taxable
income
in
the
hands
of
the
recipient,
within
the
meaning
of
section
3
of
the
Income
War
Tax
Act.
Both
judges
stressed
the
purpose
of
the
statute
under
the
authority
of
which
the
grant
in
that
case
was
made.
That
purpose
was
a
special
one,
namely,
"
"
for
assistance
in
carrying
out
approved
schemes
of
useful
work
to
relieve
unemployment.’’
Unemployment
relief
had
nothing
to
do
with
the
trade
of
the
Dock
Company
and
the
grant,
since
it
was
paid
and
received
for
‘‘unemployment
relief
purposes’’,
could
not
be
a
trade
receipt
or
an
item
of
trade
profit
or
gain
in
the
hands
of
the
Company.
It
was
received
for
the
purpose
for
which
it
was
paid
and
the
statutory
purpose
of
the
grant
determined
its
non-taxable
character.
Parliament
can,
I
think,
so
fix
the
character
of
a
payment
authorized
by
it
that
it
cannot
properly
be
regarded
as
taxable
income
in
the
hands
of
the
recipient
within
the
meaning
of
the
Income
War
Tax
Act.
The
decision
of
the
House
of
Lords
in
The
Seaham
Dock
Co.
Case
(supra),
in
my
opinion,
fully
justifies
such
a
statement
of
principle.
The
purpose
for
which
the
subsidy
payments
in
the
present
case
were
made
and,
received
is
to
be
found
in
the
Dry
Dock
Subsidies
Act,
1910,
as
amended,
and
in
the
agreements
and
Orders
in
Council
made
under
its
authority.
The
Act
is
intituled
"‘an
Act
to
encourage
the
Construction
of
Dry
Docks’’
and
was
designed
by
Parliament
to
procure
the
construction
of
dry
docks,
when
the
Governor
in
Council
was
satisfied
that
they
were
needed
in
the
public
interest,
by
state
aid
to
their
construction.
At
the
time
the
subsidy
agreement
with
the
Appellant
was
authorized
in
July
of
1918,
there
was
no
dry
dock
of
the
first
class
on
the
Atlantic
Coast
and
the
construction
of
such
a
dry
dock,
large
enough
to
receive
and
repair
therein
with
ease
and
safety
the
largest
ships
of
the
British
Navy
then
exist-
ing
and
in
which
Britain
and
Canadian
naval
and
other
government
owned
vessels
would
have
priority
over
all
other
vessels
was
considered
in
the
public
interest.
The
construction
of
such
a
dry
dock
was
not
likely
to
be
undertaken
as
a
commercial
venture
and
either
construction
by
the
state
or
state
aid
to
its
construction
was
necessary.
Parliament
had
by
the
Act
authorized
the
latter
alternative
and
it
was
adopted.
The
construction
of
the
dock,
which
was
designed
to
serve
a
purpose
of
national
importance
particularly
in
a
time
of
war,
was
entrusted
to
the
appellant
and
state
aid
to
its
construction
was
approved.
The
whole
Act
shows
the
concern
of
Parliament
for
the
construction
of
such
a
dock
as
would
meet
the
public
requirements;
the
dock
had
to
be
constructed
in
accordance
with
plans
and
specifications
approved
by
the
Department
of
Public
Works
and
the
work
had
to
be
done
under
the
supervision
of
that
Department.
The
subsidy
was
paid
as
an
aid
to
its
construction,
was
payable,
as
section
9
shows,
in
respect
of
its
construction
and
its
amount
was
calculated
on
the
cost
of
its
construction.
That
Parliament
was
concerned
with
the
construction
of
the
dock,
rather
than
with
its
maintenance
or
operation,
is
shown
by
the
fact:that
no
forfeiture
of
the
subsidy
payments
took
place
if
the
dock
was
not,
after
its
construction,
kept
in
repair
and
working
order.
In
such
event
the
Government
had
the
remedy
of
taking
possession
of
the
dock
and
operating
it.
Parliament
also
clearly
showed
that
the
subsidy
was
intended
exclusively
for
dock
construction
purposes
by
the
provisions
of
the
Act
relating
to
the
issue
of
bonds.
No
bond
issue
that
would
be
a
charge
on
the
dock
was
permitted
at
all,
until
not
less
than
$1,000,000
had
been
spent
on
it.
After
that,
bonds
might
be
issued
but
only
with
the
consent
of
the
Govern-
ment
and
the
Act
clearly
contemplated
such
a
bond
issue
by
allowing
payments
on
account
of
the
subsidy
during
construction,
the
issue
of
bonds
with
the
necessary
consent,
and
the
assignment
of
the
subsidy
payments
as
security
for
such
bonds.
Such
a
bond
issue
was
the
device
used
by
the
appellant
to
realize
the
immediate
value
of
the
subsidy
payments
as
they
were
approved
and
was
part
of
the
scheme
of
state
aid
to
construction
contemplated
by
the
Act.
Complete
control
over
everything
relating
to
the
issue
of
bonds
was
vested
in
the
Government
and
no
consent
was
given
for
the
issue
of
bonds
that
would
be
a
charge
on
the
dock
unless
the
subsidy
payments
were
assigned
to
the
trustee
for
the
bondholders
as
security
for
such
bonds.
Parliament
intended
by
these
provisions
to
make
sure
that
the
dock
would
be
constructed
and
be
available
in
the
public
interest
without
any
risk
that
it
would
ever
pass
into
the
hands
of
the
bondholders
through
any
default
in
payment
of
the
bonds.
In
the
present
case,
the
purpose
of
the
Act
and
the
agreements
and
Orders
in
Council
made
under
its
authority
was
to
secure
the
construction
of
a
dry
dock
of
the
first
class
on
the
Atlantic
Coast
and
the
subsidy
payments
were
made
as
an
aid
to
such
construction
in
order
to
accomplish
the
purpose
of
the
Act.
That
purpose
was
a
special
one,
in
the
public
interest,
quite
apart
from
the
trade
and
business
operations
of
the
appellant
and
had
nothing
whatever
to
do
with
its
trade
or
business
profits
or
gains.
Since
the
subsidy
was
paid
and
received
for
such
special
purpose,
in
the
national
interest,
it
cannot
be
said
to
be
a
trade
or
business
receipt
or
revenue
in
the
hands
of
the
appellant
or
an
item
of
trade
or
business
profit
or
gain
to
it.
It
was
paid
and
received
for
the
purpose
which
the
Act
was
designed
to
achieve
and,
in
my
opinion,
that
statutory
purpose
stamps
the
subsidy
as
an
amount
that
should
not
be
regarded
as
ah
item
of
annual
net
profit
or
gain
or
gratuity
to
the
appellant
or
taken
into
computation
for
income
tax
purposes.
In
The
Seaham
Dock
Co.
Case
(supra),
Lord
Atkin,
after
referring
to
the
statutory
purpose
for
which
the
grant
in
that
case
had
been
made,
said,
at
page
353:
"‘It
would
appear
to
me
to
be
a
remarkable
proposition
that
Parliament
assented
to
that
sum
being
appropriated
for
that
purpose,
but
intended,
in
certain
events
at
any
rate,
only
fifteen
shillings
in
the
pound
to
the
appropriated
for
that
purpose,
five
shillings
in
the
pound
of
the
full
amount
coming
back
in
the
way
of
Income
Tax.
I
do
not
think
that
was
the
effect.
‘
‘
Similar
remarks
would
be
appropriate
in
the
present
case.
I
do
not
think
that
it
was
ever
intended
by
Parliament
that,
after
payment
of
the
subsidy
had
been
authorized
by
the
Government
in
aid
of
the
construction
of
the
dry
dock
by
the
appellant,
and
after
the
dock
had
been
completed
by
the
appellant
and
the
purpose
of
the
Act
accomplished,
a
substantial
and
increasingly
large
portion
of
the
aid
to
construction
should
come
back
to
the
Government
in
the
form
of
income
tax.
The
subsidy
payments,
even
if
it
be
assumed
that
they
were
received
by
the
appellant,
were
not
trade
or
business
receipts
of
the
appellant
or
part
of
its
operating
revenues,
or
items
of
its
trade
or
business
profits
or
gains,
nor
were
they
paid
or
received
as
interest
or
a
return
on
share
or
debenture
capital,
but
rather
for
the
purpose
of
advancing
or
re-imbursing
a
capital
expenditure
by
the
appellant
and
as
a
capital
contribution
or
grant
in
respect
of
such
expenditure,
and,
furthermore,
they
were
paid
and
received
for
the
accomplishment
of
a
special
purpose
in
the
national
interest
quite
apart
from
the
trade
or
business
operations
of
the
appellant
and
not
connected
with
them.
For
these
several
reasons
I
conclude
that
the
subsidy
payments
in
this
case
were
not
subject
to
income
tax
under
the
Income
War
Tax
Act.
In
view
of
this
finding,
it
is
not
necessary
to
deal
with
the
other
contention.
of
the
appellant
that
the
subsidy
payments
were
not
received
by
it
directly
or
indirectly
after
the
trustee
for
the
bondholders
became
entitled
to
them
as
security
for
the
bonds
which
had
been
issued.
For
the
reasons
mentioned
I
find
that
the
appellant
was
erroneously
assessed
for
income
tax
in
respect
of
the
subsidy
payments
made
in
1939.
Its
appeal
must,
therefore,
be
allowed
with
costs.
Judgment
accordingly.
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