MCPHERSON,
C.J.M.:—The
respondent
company
was
incorporated
under
the
Dominion
Companies
Act
and
is
licensed
to
do
business
in
Manitoba.
Its
head
office
is
in
the
Province
of
Ontario,
in
which
province
the
manufacture
of
its
product
(chewing
gum)
is
carried
on.
The
company
maintains
a
branch
office
and
warehouse
in
the
Province
of
Manitoba.
Its
Winnipeg
office
handles
all
sales
of
the
company’s
product
in
the
three
prairie
provinces,
and
for
the
purpose
of
carrying
on
its
business
the
company
ships
its
products
in
carload
lots
from
Ontario
to
Manitoba,
where
it
is
stored
and
distributed
as
sold.
All
sales
have
to
be
approved
by
the
head
office
and
in
most
cases
payment
for
goods
sold
is
made
direct
to
that
office.
The
company
keeps
a
separate
record
in
the
Manitoba
branch
office
of
all
business
done
in
the
three
western
provinces.
The
Province
of
Manitoba,
in
accordance
with
the
Income
Taxation
Act,
c.
209
of
the
Revised
Statutes
of
Manitoba,
1940,
and
amending
Acts,
assessed
the
respondent
in
respect
of
the
taxation
periods
1936-1939
(inclusive),
and
an
appeal
was
made
by
the
respondent
to
the
Provincial
Treasurer
of
Manitoba,
who
affirmed
such
assessments.
An
appeal
was
thereupon
heard
in
the
Court
of
King’s
Bench
by
Mr.
Justice
Major,
who
set
aside
the
order
of
the
Minister
affirming
the
said
assessments
and
referred
the
matter
back
to
the
Minister
to
make
the
assessments
in
accordance
with
the
terms
set
forth
in
a
judgment
entered
on
June
11,
1943.
The
Provincial
Treasurer
now
appeals
to
this
Court
to
set
aside
the
order
of
Mr.
Justice
Major
entered
on
the
said
date.
The
question
was
originally
raised
as
to
whether
the
respondent
company
was
carrying
on
business
in
Manitoba,
and
numerous
authorities
were
submitted
in
support
of
the
appellant’s
contention
that
the
company
did
carry
on
business
in
the
Province
within
the
meaning
of
the
Act.
Counsel
for
the
respondent,
on
argument,
quite
properly
admitted
that
the
company
was
carrying
on
business
in
Manitoba,
and
it
is
therefore
unnecessary
to
consider
that
point.
The
general
method
by
which
the
company
carries
on
business
is
referred
to
above,
but
there
are
these
additional
important
facts:
The
respondent
company,
when
it
ships
goods
from
Ontario
to
its
branch
office
in
Manitoba,
charges
said
office
with
the
cost
of
such
goods
at
a
fixed
basic
rate
of
28-cents
per
unit.
The
actual
costs
of
manufacturing
the
goods
during
the
years
1936
to
1939
(inc.)
were
respectively
.19180,
19860,
121630,
and
.22230.
,
The
difference
between
actual
cost
and
the
28-cents
per
unit
with
which
the
Manitoba
branch
is
charged
represents
a
profit
for
manufacturing.
The
matter
in
dispute
is
very
simple.
It
is
admitted
that
the
respondent
is
liable
for
taxation
under
the
Manitoba
Income
Taxation
Act
and
the
points
at
issue
between
the
parties
are
(1)
The
appellant
contends
that
the
Manitoba
branch
should
be
charged
with
the
actual
cost
of
manufacturing
the
commodity
in
each
year
and
that,
after
adding
expenses
incurred
in
Manitoba
and
the
freight
costs
from
Toronto
on
goods
shipped
to
Manitoba,
the
profit
from
the
sale
of
such
goods
is
the
amount
liable
for
taxation
in
Manitoba.
(2)
The
respondent
contends
that
the
company
is
entitled
to
an
allowance
as
profit
on
the
actual
cost
of
manufacture
in
Ontario
and
that
it
is
entitled
to
charge
the
Manitoba
branch
at
the
rate
of
28-cents
per
unit
in
accordance
with
its
practice.
(3)
The
appellant
further
contends
that
it
is
not
a
case
for
apportionment
of
profits,
and
that
the
formula
adopted—or
any
formula
for
apportioning
profits—should
not
be
applied
in
determining
the
tax
payable
by
the
respondent
in
respect
of
its
sales
made
in
Manitoba.
The
right
of
the
appellant
to
levy
any
tax
is
governed
by
the
Income
Taxation
Act,
ce.
209,
R.S.M..
1940.
As
mentioned,
the
period
for
which
assessments
were
made
were
the
years
1936-
1939
(inc.),
and
although
there
were
amendments
and
changes
in
the
Act
from
time
to
time
during
such
period,
they
do
not
effect
the
questions
in
dispute
on
this
appeal.
The
sections
of
the
said
Act
referred
to
on
the
argument
by
counsel
as
being
applicable
are
as
follows
:
4
9.
(1)
There
shall
be
assessed,
levied
and
paid
upon
the
income
during
the
preceding
year
of
every
person
*****
"‘(d)
who,
not
being
resident
in
Manitoba,
is
carrying
on
business
in
Manitoba
during
such
year;’’
"
‘23.
Where
any
corporation
carrying
on
business
in
Manitoba
purchases
any
commodity
from
a
parent,
subsidiary,
or
associated
corporation
at
a
price
in
excess
of
the
fair
market
price,
or
where
it
sells
any
commodity
to
such
a
corporation
at
a
price
less
than
the
fair
market
price,
the
minister
may,
for
the
purpose
of
determining
the
income
of
such
corporation,
determine
the
fair
price
at
which
such
purchase
or
sale
shall
be
taken
into
the
accounts
of
such
corporation.’’
“24
.
(1)
The
income
liable
to
taxation
under
this
Part
of
*
every
person
residing
outside
of
Manitoba,
who
is
carrying
on
business
in
Manitoba,
either
directly
or
through
or
in
the
name
of
any
other
person,
shall
be
the
net
profit
or
gain
arising
from
the
business
of
such
person
in
Manitoba.
"‘
(2)
This
section
shall
apply
to
a
taxpayer
which
is
a
corporation
or
joint
stock
company
carrying
on
business
in
Manitoba
and
which
has
not
its
head
office
in
Manitoba.
‘
‘
"26.
(1)
Where
a
non-resident
person
produces,
grows,
mines,
creates,
manufactures,
fabricates,
improves,
packs,
preserves
or
constructs,
in
whole
or
in
part
anything
within
Manitoba
and
exports
the
same
without
sale
prior
to
the
export
thereof,
he
shall
be
deemed
to
be
carrying
on
business
in
Manitoba
and
to
earn
within
Manitoba
a
proportionate
part
of
any
profit
ultimately
derived
from
the
sale
thereof
outside
of
Manitoba.
"
"
(2)
The
Minister
shall
have
full
discretion
as
to
the
manner
of
determining
such
proportionate
part.’’
"47
.
The
minister
shall
not
be
found
by
any
return
or
information
supplied
by
or
on
behalf
of
a
taxpayer,
and
notwithstanding
such
return
or
information,
or
if
no
return
has
been
made,
the
minister
may
determine
the
amount
of
the
tax
to
be
paid
by
any
person.”
From
the
above
sections
it
will
be
seen
that
sec.
9(1)
is
the
general
governing
section
which
imposes
liability
for
taxation,
and
the
appellant
submits
that
if
it
were
not
for
the
other
clauses,
all
the
profits
made
by
the
company—regardless
of
where
they
were
made—would
be
taxable
in
Manitoba.
The
appellant
relies
wholly
upon
sec.
24
as
authority
for
the
Province
to
levy
an
assessment
on
the
total
profit
or
gain
arising
from
the
sale
of
the
goods
in
Manitoba.
The
other
sections
deal
with
special
conditions
which
may
exist
under
which
business
is
carried
on
in
Manitoba,
and
are
for
the
purpose
of
ascertaining
the
fair
amount
which
should
be
taxed
and
to
avoid
possible
imposition
of
double
taxation.
The
respondent
maintains
that
secs.
23
and
26
indicate
the
Legislature
acknowledged
and
approved
the
apportionment
of
profits
where
part
of
a
business—as
in
the
present
case—are
carried
on
in
defferent
provinces.
In
so
far
as
see.
23
is
concerned
:
that
deals
solely
with
cases
where
a
corporation
is
dealing
in
any
commodity
with
a
parent,
subsidiary
or
associated
corporation,
and
empowers
the
Minister,
for
the
purpose
of
determining
the
income
of
such
corporation,
to
fix
a
fair
market
price
for
the
commodity
being
dealt
with.
If
respondent’s
counsel
is
right
in
his
argument
that
an
inference
should
be
drawn
that
the
Legislature
intended
to
apply
the
principle
of
apportionment
of
profits,
I
would
be
of
opinion
that,
owing
to
the
peculiar
relationship
and
method
of
doing
business
which
existed
between
the
appellant
‘s
head
office
in
Ontario
and
branch
office
in
Manitoba,
it
would
be
more
logical
to
apply
section
23
to
the
present
case
in
ascertaining
the
fair
price
to
be
charged
to
the
branch
office;
and
the
information
necessary
for
him
to
arrive
at
such
price
would
be
entirely
different
to
that
necessary
under
section
24.
Section
26
does
provide
for
the
apportionment
of
profits
where
the
goods
originate
in
Manitoba
but
the
sale
takes
place
outside
the
Province.
Under
that
section
the
Minister
has
full
discretion
as
to
the
manner
of
determining
such
proportionate
part.
The
effect
of
the
section
is
to
protect
the
taxpayer
from
double
taxation.
Counsel
for
the
respondent
urges
strongly
that
it
shows
the
adoption
by
the
Legislature
of
the
principle
of
apportionment.
I
cannot
agree
with
that
contention
but
arrive
at
a
conclusion
the
very
reverse.
The
Legislature
has
enacted’
special
provisions
for
special
conditions
and
if
it
wished
those
special
enactments
to
be
given
wider
application
it
would
have
been
quite
simple
to
have
included
same
in
section
24.
I
am
therefore
of
the
opinion
that
the
problem
is
reduced
to
the
effect
of
section
24
and
to
what
extent
it
varies
the
liability
for
taxation
under
section
9(1);
and,
more
particularly,
what
is
the
exact
meaning
and
interpretation
of
the
words:
‘‘income
liable
for
taxation
.
.
.
shall
be
the
net
profit
or
gain
arising
from
the
business
of
such
person
in
Manitoba.
‘
‘
The
question
of
where
profits
are
made
in
carrying
on
a
business
has
been
dealt
with
extensively
by
the
English
Courts.
In
Erichsen
v.
Last
(1881),
8
Q.B.D.
414,
the
appellant
was
a
company
carrying
on
a
cable
and
telegraphic
business
in
England
through
its
head
office
in
Denmark.
Messages
were
accepted
in
England
and
transmitted
to
Denmark
for
delivery
to
all
parts
of
the
world
over
various
connecting
lines
with
which
the
company
had
business
arrangements.
It
was
held,
for
the
purpose
of
ascertaining
what
profits
were
taxable,
that
the
company
was
carrying
on
business
in
England
and
should
pay
on
the
amount
of
the
receipts
received
under
contracts
in
England,
less
the
cost
to
the
company
of
completing
the
delivery;
but
where
part
of
the
contract
was
performed
by
the
company
itself
it
was
not
entitled
to
deduct
anything
in
respect
of
profits
supposed
to
have
been
earned
by
it
in
the
course
of
such
part
performance.
In
Lovell
v.
Commissioner
of
Taxes,
[1908]
A.C.
46,
the
Court
reversed
the
judgment
of
the
Supreme
Court
of
New
Zealand,
which
held
that
profits
earned
by
way
of
commission
in
London,
under
agency
contracts
for
the
sale
of
goods
imported
from
New
Zealand,
were
liable
to
taxation
under
the
New
Zealand
statute.
Sir
Arthur
Wilson,
in
delivering
the
judgment
of
the
Court,
stated
at
p.
52
:
"‘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.
The
commission
is
the
consideration
for
effecting
such
sales.
The
moneys
received
by
the
appellants,
out
of
which
they
deduct
their
commission,
and
from
which,
therefore,
their
profits
come,
are
paid
to
them
under
the
contract
of
sale
effected
in
London.
The
earlier
arrangements
entered
into
in
New
Zealand
appear
to
their
Lordships
to
be
transactions
the
object
and
effect
of
which
is
to
brings
goods
from
New
Zealand
within
the
net
of
the
business
which
is
to
yield
a
profit.
To
make
those
transactions
a
ground
for
taxing,
in
New
Zealand,
the
profits
actually
realized
in
London
would,
in
their
Lordships’
opinion,
be
to
extend
the
area
of
taxation
further
than
the
authorities
warrant/
9
In
Commissioner
of
Taxes
v.
British
Australian
Wool
Realization
Association,
[1931]
A.C.
224,
there
were
several
questions
to
be
disposed
of
and
there
were
peculiar
relationships
between
the
respondent
and
the
Governments’
interest
in
the
disposal
of
wool
accumulated
under
war
conditions.
Among
the
questions
in
dispute
was
the
liability
for
taxation
in
reference
to
profits
made
on
wool
sold
by
the
Association
outside
of
Australia.
Lord
Blanesburgh,
who
delivered
the
judgment
of
the
Court,
dealt
with
that
particular
subject
at
p.
255,
where
he
refers
to
Grainger
v.
Gough,
[1896]
A.C.
325,
and
Lovell
v.
Commissioner
of
Taxes
(supra),
and
quotes
the
ruling
in
the
latter
case:
"One
rule
is
easily
deducible
from
the
decided
cases.
The
trade
or
business
in
question
in
such
eases
ordinarily
consists
in
making
certain
classes
of
contracts
and
in
carrying
those
contracts
into
operation
with
a
view
to
profit;
and
the
rule
seems
to
be
that
where
such
contracts,
forming
as
they
do
the
essence
of
the
business
or
trade,
are
habitually
made,
there
a
trade
or
business
is
carried
on
within
the
meaning
of
the
Income
Tax
Acts,
so
as
to
render
the
profits
liable
to
income
tax/
9
He
held
that
the
profits
realized
by
sale
outside
of
Australia
were
not
taxable
in
Australia.
In
Laycock
v.
Freeman,
[1939]
2
K.B.
1,
the
manner
of
operation
was
very
similar
to
that
in
the
case
now
under
consideration.
The
respondent
company
carried
on
a
large
retail
boot
and
shoe
business
through
its
various
branches
in
Great
Britain.
Prior
to
April
1,
1935,
there
were
two
subsidiary
companies
manufacturing
boots
and
shoes
of
which
the
respondent
company
owned
the
whole
capital
and
bought
the
whole
output
of
goods.
In
March
1935
the
two
subsidiary
companies
went
into
voluntary
liquidation
and
the
whole
of
the
business
and
premises
were
assigned
to
the
respondent
company,
but
they
still
continued
to
operate
as
departments
of
the
respondent
company
and
the
manufactured
products
were
sold
through
the
respondent’s
shops.
Prior
to
April
1,
1935,
the
respondent
company
fixed
the
price
at
which
the
boots
and
shoes
manufactured
by
the
subsidiary
companies
were
sold
to
it,
and
the
whole
of
the
profits
of
the
two
subsidiary
companies
were
distributed
in
dividends
to
the
respondent
company.
After
April
1,
1935,
the
respondent
company
continued
to
keep
separate
accounts
of
the
two
manufacturing
companies
as
departments
of
the
respondent
company,
and
by
its
system
of
accounting
it
added
an
arbitrary
percentage
of
profit
to
the
cost
of
manufacturing
in
order
to
arrive
at
a
sale
price
to
be
charged
the
respondent
company,
which
was
similar
to
the
cost
price
prior
to
April
1,
1935.
The
Special
Commissioners
held
that
the
business
of
the
two
manufacturing
companies
ceased
on
April
1,
1935,
and
that
the
respondent
thereafter
only
made
one
profit,
and
that
the
profit
could
not
for
income
tax
purposes
be
divided
into
a
manufacturing
profit
and
a
retail
profit.
The
decision
was
appealed
to
the
High
Court,
where
the
Commissioners’
decision
was
affirmed
by
Lawrence,
J.,
and
a
further
appeal
was
taken
by
the
Crown.
This
was
dismissed
by
the
Court
of
Appeal.
Greene,
M.R.,
in
giving
the
judgment
of
the
Court,
discusses
in
detail
the
contention
of
the
Crown
that
it
is
possible
to
divide
the
profits
into
manufacturing,
wholesales
and
retail
divisions
for
the
purposes
of
taxation,
and
says
at
p.
11
:
"‘In
my
judgment,
that
is
wholly
illegitimate.
There
is
no
such
thing
in
a
case
of
this
kind,
for
any
income
tax
purpose,
as
a
wholesaler’s
profit;
it
is
wholly
non-existent.
The
expression
is
a
convenient
one
from
the
point
of
view
of
accountants,
whose
task
is
to
dissect
profits
and
attribute
them
in
part
to
one
aspect
of
their
client’s
activities,
and
in
part
to
another
aspect
of
their
client’s
activities.
Obviously
a
wholesaler
makes
a
wholesaler’s
profit;
a
retailer
makes
a
retailer’s
profit;
but
to
say
of
a
manufacturer
who
sells
retail
that
he
makes
two
profits,
a
wholesoler’s
profit
and
a
retailer’s
profit—
although
for
accountancy
purposes
it
may
be
very
convenient
and
useful
that
the
accounts
should
be
kept
on
that
basis—has
no
reality
in
fact,
since
no
profit
is
realized
until
the
goods
are
sold,
and
the
profit
that
is
realized
is
the
profit
realized
by
disposing
of
the
goods
by
sale.’’
The
respondent
relies
upon
the
dissenting
judgment
of
Duff,
C.J.,
in
International
Harvester
Co.
v.
Provincial
Tax
Commissioner,
[1941]
S.C.R.
325,
where
the
appellant
company
manu-
factured
goods
in
Ontario
which
were
sold
through
agencies
in
the
Province
of
Saskatchewan.
No
accounting
record
was
kept
whereby
it
was
possible
to
ascertain
the
profits
arising
out
of
the
Saskatchewan
business.
The
respondents,
under
regulations
providing
the
method
of
assessing
for
taxation
purposes
where
such
a
condition
arose,
made
assessments
based
upon
such
percentage
as
the
company’s
income
from
sales
within
the
Province
bore
to
the
total
sales
of
the
company,
and
the
assessment
was
sustained.
Duff,
C.J.,
in
giving
a
dissenting
judgment,
took
the
ground
that
the
regulations
were
ultra
vires
as
they
attempted
to
tax
profits
arising
partially
outside
the
Province,
and
that
the
company
was
entitled
to
some
share
of
the
profits
for
manufacturing
the
product.
In
arriving
at
this
conclusion
his
Lordship
relied
upon
Commissiouers
of
Taxation
V.
Kirk,
[1900]
A.C.
588.
With
the
greatest
deference
to
his
Lordship,
I
would
point
out
that
sections
of
the
New
South
Wales
Land
and
Income
Tax
Assessment
Act
of
1895,
under
which
the
levy
was
made,
contained
clauses
entirely
different
to
those
in
the
statute
we
have
under
consideration.
•
Lord
Davey,
who
gave
the
judgment
of
the
Court
in
the
Kirk
case,
said
(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.
This
is
a
question
of
fact.
At
first
sight
it
seems
startling
that
the
ultimate
results
in
the
form
of
profit
of
a
business
carried
on
(as
found
by
the
special
cases)
in
the
Colony
is
not
to
some
extent
taxable
income
there,
but
if
it
cannot
be
brought
within
the
language
of
the
Act
that
must
of
course
be
the
result.”
Their
Lordships
held
in
that
case
that
the
following
subsections
of
section
15
made
the
profits
taxable
in
New
South
Wales:
"(3)
Derived
from
lands
of
the
Crown
held
under
lease
or
license
issued
by
or
on
behalf
of
the
Crown;
"(4)
Arising
from
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
sub-sections.”
Counsel
for
the
respondent
further
submitted
that
the
judgment
of
Rinfret,
J.
(now
C.J.),
in
the
case
of
Firestone
Tire
Co.
v.
Commissioner
of
Income
Tax,
[1942]
S.C.R.
476;
[1942]
C.T.C.
254,
indicated
his
Lordship
would
have
agreed
with
Duff,
C.J.,
on
the
point
that
it
was
proper
to
allow
a
manufacturing
profit
if
he
had
dealt
with
that
phase
of
the
question
in
the
International
Harvester
judgment.
I
cannot
find
anything
in
the
judgment
of
Rinfret,
J.,
in
the
Firestone
case
which
would
lead
me
to
agree
with
counsel’s
contention
on
that
point.
The
question
in
dispute
in
the
Firestone
case
was
as
to
the
effect
of
the
contract
between
the
agencies
in
British
Columbia
and
the
company
in
Ontario.
The
Court
held
that
the
goods
supplied
by
the
manufacturers
in
Ontario
were
sold
outright
in
Ontario
to
the
agents,
and
that
the
profits
were
not
taxable
in
British
Columbia.
The
Court
divided,
three
to
two,
on
this
question;
the
dissenting
Judges
holding
that
the
contract
constituted
one
of
agency
of
the
appellant
company,
and
that
the
profits
made
from
the
sales
in
British
Columbia
were
subject
to
taxation
there.
Kerwin,
J.,
in
delivering
the
dissenting
judgment
of
himself
and
Hudson,
J.,
discusses
at
length
the
judgment
in
the
Kirk
case
and
draws
attention
to
the
difference
between
the
statutory
provisions
of
the
New
South
Wales
Act
and
the
British
Columbia
Act.
His
Lordship
follows
Lovell
v.
Commissioner
of
Taxes,
supra,
and
quotes
with
approval
the
judgment
of
Isaacs,
J.,
in
Commissioner
of
Taxation
v.
Meeks
(1915),
19
C.L.R.
568,
which
he
adopts,
and
closes
his
judgment
by
stating
(p.
494)
:
"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
of
the
income,
therefore,
was
earned
within
British
Columbia.
’
’
He
would
have
dismissed
the
appeal.
In
so
far
as
the
effect
of
section
24
is
concerned,
it
is
not,
strictly
speaking,
necessary
to
refer
to
the
formula
submitted,
and
approved
by
Major,
J.,
as
the
basis
for
a
proportion
of
the
profits
to
be
allowed
as
manufacturing
profits
in
Ontario,
except
that
I
do
not
wish
it
to
be
understood
I
would
accept
that
formula
if
it
were
necessary
to
apply
one.
In
reply
to
a
question
put
by
myself,
counsel
for
the
respondent
stated
there
was
no
material
difference
between
the
amount
of
the
profit
as
computed
under
the
formula
submitted
and
the
amount
of
same
as
based
on
the
charge
of
28-cents
per
unit.
A
reasonable
inference
might
be
drawn
that
the
formula
was
compiled
to
arrive
at
the
same
result
as
that
attained
by
the
arbitrary
fixing
of
the
price
of
28-cents.
The
question
immediately
suggests
itself
as
to
why
a
profit
of
approximately
50%
should
be
allowed
on
manufacturing
while
one
of
less
than
7%
is
allowed
on
sales
costs.
Such
a
variation
may
be
justified,
but
it
would
require
considerable
investigation
and
information
to
arrive
at
a
fair
decision.
In
one
respect
I
think
the
formula
is
absolutely
wrong
when
it
adds
cost
of
freight
to
the
manufacturing
cost
on
goods
to
be
shipped
from
Ontario
to
Manitoba,
instead
of
adding
it
the
cost
of
goods
at
the
Manitoba
branch.
The
judgment
of
the
Court
of
King’s
Bench
as
entered
deals
with
the
four
taxation
years
in
question,
namely
1936,
1937,
1938
and
1939
separately
in
paragraphs
2,
3,
4,
and
5,
and
each
paragraph
directs
that
the
Minister
do
assess
the
Company
on
the
basis
set
out
and
that
it
be
referred
back
to
the
said
Minister
to
assess
the
Company
on
such
basis.
No
such
direction
was
given
by
Major,
J.,
as
appears
from
a
reference
to
his
reasons
for
judgment,
but
counsel
both
for
appellant
and
respondent
stated
to
this
Court
when
its
judgment
was
handed
down
that
the
directions
to
the
Minister
were
inserted
in
the
judgment
of
the
Court
of
King’s
Bench
by
agreement
of
counsel
who
themselves
settled
and
agreed
upon
the
form
of
the
judgment.
I
would,
therefore,
allow
the
appeal
and
direct
that
the
decision
of
the
Minister
affirming
the
original
assessment
be
reinstated.
There
will
be
costs
allowed
to
the
appellant
in
this
Court
and
in
the
Court
below.
TRUEMAN,
J.A.
:—Sec.
58
of
the
Income
Taxation
Act,
C.A.
1924,
ch.
1,
re-enacted
in
S.M.
1937,
ch.
43,
sec.
1,
and
now
ch.
209,
R.S.M.
1940,
makes
provision
that
any
person
who
objects
to
the
amount
at
which
he
is
assessed
may
appeal
to
the
Minister.
See.
59
provides
that
the
Minister
shall
consider
the
appeal
and
shall
affirm
or
amend
the
assessment
appealed
against
and
notify
the
appellant
of
his
decision.
See.
60(1)
enacts
that
"‘If
the
person
objecting
is
dissatisfied
with
the
decision
of
the
Minister,
he
may,
within
one
month
from
the
date
of
the
mailing
of
the
decision,
mail
to
the
Minister
by
registered
post,
a
notice
of
his
intention
to
appeal
to
a
Judge
of
the
Court
of
King’s
Bench
.
.
.
and
shall
set
forth
the
grounds
of
the
appeal,
and
the
appellant
shall
file
a
copy
of
the
notice
in
the
office
of
the
Prothonotary
of
the
Court.
Within
fourteen
days
after
the
date
of
mailing
the
aforesaid
notice
to
the
Minister,
the
appellant
shall
apply
to
the
Judge
for
the
appointment
of
a
day
for
the
hearing
.
.
.
.”
"‘(2)
The
Judge
shall
hear
the
appeal
and
the
evidence
adduced
before
him
by
the
appellant
and
the
Crown
in
a
summary
manner,
and
shall
decide
the
matter
of
the
appeal
.
.
.
.”
Sec.
47
is
excluded
by
the
above
provision.
The
section
provides
as
follows:
""The
Minister
shall
not
be
bound
by
any
return
or
information
supplied
by
or
on
behalf
of
a
taxpayer,
and
notwithstanding
such
return
or
information,
or
if
no
return
has
been
made,
the
Minister
may
determine
the
amount
of
the
tax
to
be
paid
by
any
person.”
The
present
matter
came
before
Mr.
Justice
Major.
There
were
no
pleadings.
In
a
studied
judgment
he
made
a
terse
review
of
the
considerable
issues
involved.
By
agreement
of
the
Minister
and
the
Company
the
judgment
is
appealed
by
the
Minister.
Mr.
Cousley,
counsel
for
the
Crown,
is
good
enough
to
state
in
his
brief
that
the
facts
are
accurately
set
out
in
the
judgment
below.
The
William
Wrigley
Jr.
Company,
manufacturer
of
chewing
gum,
has
its
head
office
and
factory
in
Toronto
and
is
incorporated
under
the
Dominion
Companies
Act
and
licensed
by
the
Province.
It
has
a
large
capital
and
trade.
The
Company
rents
a
branch
office
and
warehouse
at
Winnipeg.
Car
loads
of
the
product
are
forwarded
from
Toronto
to
the
Winnipeg
warehouses
as
required,
and
car
pool
lots
are
distributed
in
Manitoba,
Saskatchewan
and
Alberta
by
jobbers
and
salesmen
who
make
sales
of
the
product
to
wholesale
and
retail
customers.
The
business
of
the
Company
is
conducted
with
scrupulous
system.
In
a
brief
addressed
to
the
Minister
under
date
of
November
14,
1941,
by
the
Company’s
counsel
at
Toronto,
with
respect
to
assessments
for
the
above
years
1936,
1937,
1938,
and
1939,
the
following
submissions,
inter
alia,
are
stated:
"(a)
That
under
the
above
statutes
only
the
net
profit
or
gain
arising
from
the
business
of
the
Company
in
Manitoba
is
taxable
;
"(b)
That
these
assessments
seek
to
tax
the
total
net
profits
of
the
Company
received
in
respect
of
sales
or
deliveries
made
in
the
Provinces
of
Manitoba,
Saskatchewan,
and
Alberta,
and
disregard
the
fact
that
only
a
portion
of
such
profit
‘arises
from’
that
part
of
the
Company’s
business
carried
on
in
Manitoba;
""
(c)
That
the
profits
of
the
Company
are
derived
from
a
series
of
operations,
including
the
purchase
of
materials
and
ingredients,
the
manufacture
of
its
products,
the
advertising,
transportation.
’
It
is
obvious,
in
some
measure
of
examination
of
the
Company’s
records,
that
while
a
large
business
is
done,
profits
are
greatly
disproportionate
to
the
business
done
in
Western
Canada
due
to
expense
in
traffic
and
distance.
Schedule
rates
of
taxation
in
the
Act
made
applicable
to
corporations
and
joint
stock
companies
grade
from
one
per
cent
on
the
first
thousand
dollars,
with
the
same
percentage
increase
on
each
additional
$1,000.00.
The
Provinces
of
Manitoba,
Saskatchewan,
and
Alberta,
are
treated
by
the
Company
as
one
Western
Division,
with
apparently
a
single
audit
system.
In
point
of
individuality,
each
Province
carries
on
its
own
business
and
has
direct
relations
with
the
head
office
at
Toronto.
The
profits
of
the
above
mentioned
four
years
are
shown
under
the
caption:
"‘allocation
of
Profits—Western
Division—for
the
years
1936
to
1939,
inclusive,”
and
are
respectively
as
follows:
For
the
year
1936—$38,152.00,
less
Dominion
Tax,
$5,723.00;
For
the
year
1937—$33,181.00,
less
Dominion
Tax,
$4,977.00;
For
the
year
1938—$30,634.00,
less
Dominion
Tax
$4,595.00;
For
the
year
1939—$35,411.00,
less
Dominion
Tax
$5,311.00.
On
the
above
taxable
profits,
the
Manitoba
tax
for
1936
is
fixed
by
the
Company
at
five
per
cent—the
sum
total
being
$1,621.00
;
for
1937
the
rate
is
five
per
cent,
with
a
total
of
$1,410.00
;
for
1938
the
rate
is
ten
per
cent,
with
a
total
of
$2,604.00
;
for
1939
the
rate
is
ten
per
cent,
with
a
total
of
$3,010.00.
The
total
taxation
for
the
four
years
is
$8,645.00.
Payments
on
account
have
been
made
by
the
Company
in
each
of
these
years.
On
the
other
hand,
the
levy
by
the
Province
for
the
said
years
is
set
at
$18,941.00,
in
the
yearly
sums
of
$3,714.71;
$3,165.08;
$6,294.56;
and
$5,767.05.
The
controversy
had
two
aspects.
One
pertained
to
certain
assessments
levied
by
the
Provincial
Treasurer
for
the
years
1936
to
1939,
inclusive.
The
Crown
claimed
that
the
profits
arising
from
the
business
carried
on
within
Manitoba
embraced
as
well
profits
from
sales
in
Saskatchewan
and
Alberta.
The
strange
anomaly
was
indorsed
by
the
Company.
The
ground
for
the
Crown’s
position
was
that
as
the
Company
sent
ear
loads
and
pool
lots
from
the
Winnipeg
warehouse
to
buyers
in
Saskatchewan
and
Alberta
the
profits
therefrom
were
leviable
in
Manitoba.
The
position
was
one
that
could
not
be
supported.
These
were
not
Manitoba
transactions;
they
were
Ontario
shipments
help
up
for
convenience
in
the
Winnipeg
warehouse
until
despatched
on
orders
by
the
Toronto
office
to
jobbers
and
traders
in
Saskatchewan
and
Alberta.
Sales
made
by
them
were
accounted
for
by
them
directly
to
Toronto.
By
no
conceivable
device
could
such
transactions
be
charged
to
be
sales
within
and
to
be
subject
to
profits
in
Manitoba.
The
discussion
brings
one
to
sec.
24
of
the
Income
Taxation
Act,
S.M.
1937,
ch.
43;
now
311.
209,
R.S.M.
1940.
It
enacts
as
follows
:
(1)
The
income
liable
to
taxation
under
this
Part
of
every
person
residing
outside
of
Manitoba,
who
is
carrying
on
busi-
ness
in
Manitoba,
either
directly
or
through
or
in
the
name
of
any
other
person,
shall
be
the
net
profit
or
gain
arising
from
the
business
of
such
person
in
Manitoba.
"‘(2)
This
section
shall
apply
to
a
taxpayer
which
is
a
corporation
or
joint
stock
company
carrying
on
business
in
Manitoba
which
has
not
its
head
office
in
Manitoba.
‘
‘
The
enactment
has
its
own
clarity
with
respect
to
the
present
corporation.
It
carries
on
business
in
Manitoba.
In
so
far
as
it
derives
net
profits
and
gains
from
its
busines
sales
in
Manitoba
it
is
subject
to
income
taxation.
What
the
Company
is
not
subject
to
is
taxation
on
profits
on
merchandise
forwarded
from
Toronto
to
jobbers
and
traders
in
Saskatchewan
and
Alberta.
To
hold
otherwise
would
be
to
create
a
double
taxation
and
set
up
a
system
of
taxation
in
Manitoba
without
sales
and
profits
in
Manitoba.
For
the
rationale
of
the
residence
and
domicile
of
Corporations
with
respect
to
Income
Tax
and
the
avoidance
of
double
taxation,
see
The
Law
Quarterly
Review,
Vol.
61,
(1945)
July
number,
p.
225.
One
is
now
drawn
to
the
assessment
of
1936,
1937,
1938
and
1939
{supra).
The
Company’s
case
before
the
learned
Judge
was
incurable
unless
the
assessments
were
set
aside
and
the
profits
restricted
to
those
earned
wholly
within
Manitoba.
It
earlier
has
been
stated
therein
that
the
litigation
is
destitute
of
pleadings
explanatory
of
the
issues.
In
a
decree
following
the
hearing,
the
learned
Judge,
under
date
of
March
10,
1943,
held
that
the
Minister
in
making
and
confirming
the
said
assessments
"‘had
not
given
effect
to
the
provisions
of
the
taxation
statute
above
referred
to
limiting
the
income
liable
to
taxation
thereunder
of
the
Appellant
as
a
person
residing
outside
of
Manitoba
who
is
carrying
on
business
in
Manitoba
to
the
net
profit
or
gain
arising
from
the
business
of
the
Appellant
in
Manitoba.”
An
order
was
thereupon
made
setting
the
assessments
aside.
The
decree
proceeds
as
follows:
"And
this
Court
doth
further
adjudge
and
declare
that
the
net
profit
or
gain
of
the
Appellant
arising
from
its
business
in
Manitoba
in
the
taxation
period
1936
is
$38,152.00,
from
which
sum
there
should
be
deducted
the
amount
of
the
exemption
or
deduction
to
which
the
Appellant
is
entitled
under
the
provisions
of
paragraph
(1)
of
subsection
1
of.
section
5
of
the
Income
Tax
Act
applicable
for
the
said
taxation
period,
and
that
the
Minister
do
assess
the
said
Appellant
on
such
basis
and
that
it
be
referred
back
to
the
said
Minister
to
assess
the
Appellant
on
such
basis.
‘
‘
The
years
1937,
1938,
and
1939
are
severally
covered
in
the
decree
in
the
same
terms.
A
concluding
order
makes
the
costs
of
the
proceedings
payable
by
the
respondent
Crown.
I
would
dismiss
the
appeal
with
costs.
BERGMAN,
J.A.:—This
is
an
appeal
by
the
Provincial
Treasurer
of
Manitoba
from
the
judgment
of
Major,
J.,
pronounced
on
an
appeal
to
him
by
the
Wrigley
Co.
under
sec.
60
of
the
Income
Taxation
Act,
R.S.M.
1940,
ch.
209,
from
the
decision
of
the
Minister
(the
Provincial
Treasurer)
which
affirmed
the
assessments
made
against
the
company
for
the
years
1936,
1937,
1938,
and
1939.
By
the
judgment
of
Major,
J.,
the
assessments
and
the
decision
of
the
Minister
affirming
same
are
set
aside.
The
statutory
provisions
which
were
in
force
on
the
relevant
dates
have
been
carried
forward
unaltered
into
the
Revised
Statutes
of
Manitoba,
and
are
contained
in
ch.
209
thereof.
For
the
sake
of
convenience
I
shall,
therefore,
refer
to
them
by
their
numbers
in
ch.
209.
The
business
of
the
Wrigley
Co.
is
the
manufacture
and
sale
of
chewing
gum.
Its
head
office
and
factory
are
in
Toronto.
It
maintains
an
office
and
warehouse
in
Winnipeg.
All
gum
for
sale
in
the
so-called
Western
Division—which
embraces
the
provinces
of
Manitoba,
Saskatchewan,
and
Alberta,
and
Western
Ontario,
is
shipped
by
the
factory
to
Winnipeg.
By
doing
this
the
company
is
able
to
make
shipments
in
carload
lots
and
thus
effect
a
substantial
saving
in
freight
charges.
All
sales
in
the
Western
Division
are
made
by
the
Winnipeg
office,
and
the
gum
is
shipped
from
that
office.
When
a
sale
is
made
the
Winnipeg
office
makes
out
an
invoice
in
triplicate.
One
copy
thereof
is
sent
to
the
customer,
one
copy
is
sent
to
the
head
office,
and
one
copy
is
retained
by
the
Winnipeg
office.
The
purchase
price
is
payable
at
the
head
office
of
the
respondent
in
Toronto,
and
the
collections
are
for
the
most
part
made
from
there.
It
is
conceded
by
Mr.
Williams
that
the
company
is
carrying
on
business
in
Manitoba
and
is
liable
to
pay
income
tax
in
this
province.
He,
also,
conceded
for
the
purpose
of
this
appeal,
that
the
sales
made
in
the
Western
Division
outside
of
Manitoba
should
be
included
in
the
computation
of
the
income
taxable
in
Manitoba.
The
points
to
be
decided
on
this
appeal
are
stated
by
Mr.
Cousley
in
his
factum
as
follows:
"‘1.
Does
section
24
of
the
Act
require
the
apportionment
between
Ontario
and
Manitoba
of
profits
from
sales
made
in
Manitoba
?
"‘2.
Does
section
6(la)
of
the
Act
authoribe
the
deduction
from
net
income
of
an
arbitrary
amount
of
fictional
profit
called
‘manufacturing
profit’?’’
In
his
factum
Mr.
Williams
stated
the
issues
as
follows:
"
"
The
points
at
issue
in
this
appeal
are
therefore:
"
(a)
Whether
the
entire
profit
received
by
the
Respondent
in
respect
of
sales
made
through
its
Manitoba
Branch,
or
only
a
portion
of
said
profit,
is
taxable
in
Manitoba
?
"(b)
If
only
a
portion
of
such
profit
is
taxable,
has
the
judgment
appealed
from
adopted
the
correct
basis
or
method
of
apportionment
and,
if
not,
what
is
the
correct
basis
or
method
?
’
‘
Section
3
of
the
Income
Taxation
Act
defines
"
income,
‘
‘
as
applied
to
the
profits
of
a
business,
as
‘‘profits
.
.
.
received
by
a
person
.
.
.
from
any
trade,
manufacture
or
business
.
.
.
whether
derived
from
sources
within
Manitoba
or
elsewhere.
‘
‘
The
taxation
section
is
sec.
9,
the
relevant
portion
of
which
reads
as
follows:
"‘9.
(1)
There
shall
be
assessed,
levied
and
paid
upon
the
income
during
the
preceding
year
of
every
person
*****
"(d)
who,
not
being
resident
in
Manitoba,
is
carrying
on
business
in
Manitoba
during
such
year;
*
*
*
*
*
a
tax
at
the
rates
applicable.”
Sub.
sec.
(2)
fixes
the
rates
applicable
where
the
taxpayer
is
a
corporation.
Mr.
Cousely
argued,
and
I
did
not
understand
that
it
was
seriously
disputed,
that,
if
this
section
stood
unmodified,
the
respondent
would
be
liable
to
pay
in
Manitoba
a
tax
on
its
entire
income
wherever
earned.
In
his
factum
he
states
this
contention
as
follows
:
"
"
If
that
section
stood
by
itself,
the
respondent
company,
being
a
non-resident
of
Manitoba,
but
carrying
on
business
in
Manitoba,
would
be
assessable
in
Manitoba
in
respect
of
its
entire
income
for
the
years
in
question.”
He
argued
further
that
sec.
24
was
enacted
for
the
purpose
of
avoiding
double
taxation;
that
it
does
not
impose
a
tax,
but
is
in
relief
of
the
taxpayer;
and
that
it
is,
in
effect,
an
exception
to
sec.
9.(Id).
Sec.
24
reads
a
follows:
"24.
(1)
The
income
liable
to
taxation
under
this
Part
of
every
person
residing
outside
of
Manitoba,
who
is
carrying
on
business
in
Manitoba,
either
directly
or
through
or
in
the
name
of
any
other
person,
shall
be
the
net
profit
or
gain
arising
from
the
business
of
such
person
in
Manitoba.
"‘24.
(2)
This
section
shall
apply
to
a
taxpayer
which
is
a
corporation
or
joint
stock
company
carrying
on
business
in
Manitoba
and
which
has
not
its
head
office
in
Manitoba.’’
The
only
other
sections
which
were
discussed
before
us
are
sec.
6.
(la)
(dealing
with
non-permissible
deductions
from
income),
sec
23
(dealing
with
inter-company
transactions),
sec.
26
(dealing
with
the
income
of
a
non-resident
arising
from
operations
in
Manitoba),
and
sec.
47
(giving
the
Minister
arbitrary
powers
to
determine
the
amount
of
the
tax
to
be
paid
by
any
person).
These
sections
read
in
full
as
follows:
"‘6.
(1)
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.
"23.
Where
any
corporation
carrying
on
business
in
Manitoba
purchases
any
commodity
from
a
parent,
subsidiary,
or
associated
corporation
at
a
price
in
excess
of
the
fair
market
price,
or
where
it
sells
any
commodity
to
such
a
corporation
at
a
price
less
than
the
fair
market
price,
the
minister
may,
for
the
purpose
of
determining
the
income
of
such
corporation,
determine
the
fair
price
at
which
such
purchase
or
sale
shall
be
taken
into
the
accounts
of
such
corporation.
"26.(1)
Where
a
non-resident
person
produces,
grows,
mines,
creates,
manufactures,
fabricates,
improves,
packs,
preserves
or
constructs,
in
whole
or
in
part,
anything
within
Manitoba
and
exports
the
same
without
sale
prior
to
the
export
thereof,
he
shall
be
deemed
to
be
carrying
on
business
in
Manitoba
and
to
earn
within
Mantioba
a
proportionate
part
of
any
profit
unltimately
derived
from
the
sale
thereof
outside
of
Manitoba.
"‘(2)
The
minister
shall
have
full
discretion
as
to
the
manner
of
determining
such
proportionate
part.
"‘47.
The
minister
shall
not
be
bound
by
any
return
or
information
supplied
by
or
on
behalf
of
a
taxpayer,
and
notwithstanding
such
return
or
information,
or
if
no
return
has
been
made,
the
minister
may
determine
the
amount
of
the
tax
to
be
paid
by
any
person.’’
It
is
common
ground
that
what
is
here
involved
is
not
intercompany
transactions,
and
that
sec.
23,
therefore,
does
not
apply.
It
is
also
common
ground
that
this
case
does
not
come
within
sec.
26.
Both
these
sections
were,
however,
invoked
by
Major,
J.,
in
support
of
his
view
that
there
should
be
an
apportionment
of
profits
in
cases
to
which
sec.
25
applies.
He
held
that
secs.
23
and
26
constitute
a
recognition
of
the
principle
of
apportionment
of
profits,
and
that
the
principle
of
apportionment
must,
therefore,
be
read
into
sec.
24.
I
shall
deal
with
this
contention
later.
The
Minister
did
not
in
this
case
exercise
the
powers
conferred
on
him
by
sec.
47,
so
it
does
not
require
consideration.
The
issue
involved
in
this
appeal,
therefore,
boils
down
to
the
proper
interpretation
of
sec.
24
as
applied
to
the
facts
of
this
case.
For
convenience
the
Ontario
business
may
be
referred
to
as
the
manufacturing
division
and
the
business
in
Manitoba
as
the
selling
division.
The
transactions
between
these
two
divisions
were
not
purchases
or
sales,
but
were
mere
bookkeeping
transactions.
In
each
of
the
four
years
in
question
the
manufacturing
division
made
a
charge
on
its
books
of
28
cents
for
each
"‘unit’’
sent
to
the
selling
division.
This
was
purely
arbitrary
amount.
It
was
made
up
of
the
manufacturing
cost
(including
cost
of
advertising,
etc.)
plus
a
so-called
"‘manufacturing
profit.”
The
evidence
shows
that
the
"manufacturing
cost”
rose
from
slightly
over
19
cents
a
unit
in
1936
to
over
22
cents
a
unit
in
1939,
but
the
bookkeeping
charge
of
a
manufacturing
profit
of
28
cents
a
unit
remained
constant
during
the
four
years
in
question
and
has
so
remained
up
to
the
present
time.
No
attempt
was
made
to
justify
this
as
having
any
relation
to
the
actual
facts.
The
only
explanation
offered
was
that
given
by
A.
M.
Sutherland,
the
accountant
at
the
head
office
of
the
company.
He
simply
said:
"‘It
is
a
matter
of
policy
laid
down
by
our
Chicago
office.”
He
added
that
this
was
done
for
the
company’s
own
accounting
purposes.
The
difference
between
the
actual
manufacturing
cost
of
each
unit
and
the
28
cents
represents
the
so-called
“manufacturing
profit.”
For
each
of
the
four
years
in
question
the
company
made
its
annual
return
under
the
Act
(sec.
33).
These
returns
were
made
on
the
footing
that
in
arriving
at
the
taxable
income
in
Manitoba
the
company
was
entitled
to
deduct
the
manufacturing
profit
which
was
included
in
the
bookkeeping
charge
of
28
cents
a
unit,
and
that
the
respondent
was
taxable
in
Manitoba
only
on
the
difference
between
28
cents
and
the
price
at
which
the
gum
was
later
sold.
They
were
also
made
on
the
footing
that
in
arriving
at
the
taxable
income
in
Manitoba
only
sales
made
to
points
in
Manitoba
were
to
be
taken
into
account,
and
that
sales
made
to
points
in
the
Western
Division
outside
of
Manitoba
were
to
be
excluded.
On
the
argument
before
this
Court
this
position
was
abandoned
in
favor
of
the
apportionment
theory
which
Major,
J.,
adopted.
The
respective
positions
taken
by
the
Crown
and
by
Major,
J.,
are
stated
by
Mr.
Cousley
in
his
factum
as
follows:
"‘The
Crown
claims
that
the
profits
arising
from
the
business
in
Manitoba,
and,
therefore,
subject
to
tax
here,
are
the
net
profits
from
the
sales
in
Manitoba
after
due
allowance
for
cost
of
manufacture,
cost
of
sale,
and
a
certain
proportion
of
general
administrative
expenses.
“The
judgment
appealed
against
hold
that
even
after
all
such
allowances
have
been
made,
the
net
profits
from
the
sale
of
gum
in
Manitoba
must
be
apportioned
between
Ontario
and
Manitoba.
*****
“The
Province,
in
its
assessments,
has
taxed
the
Company
on
all
the
net
profit
made
from
the
Manitoba
sales;
that
is,
on
the
difference
between
the
actual
cost
price
and
the
actual
selling
price,
ignoring
for
income
tax
purposes
the
arbitrarily
fixed
figure
of
28
cents.
‘
‘
After
the
returns
had
been
filed
negotiations
took
place
between
the
Provincial
Treasurer
and
the
company
for
the
purpose
of
trying
to
adjust
the
matters
in
dispute
between
them.
During
these
negotiations
the
company
put
forward
several
alternative
suggestions,
none
of
which
were
acceptable
to
the
Provincial
Treasurer.
On
the
hearing
before
Major,
J.,
the
company
called
Walter
J.
Macdonald,
a
chartered
accountant,
to
offer
a
formula
as
to
how,
from
a
purely
accounting
point
of
view,
the
allocation
of
profits
‘‘between
the
taxing
jurisdictions
.
.
.
could
properly
be
made.’’
Mr.
Williams
admitted
that
‘‘the
law
itself
does
not
provide
the
formula.
‘
‘
For
that
reason
he
said
:
“I
have
to
bring
before
your
Lordship
an
accounting
expert
who
will
give
the
basis
upon
which
this
can
be
done.’’
His
formula
is
set
out
in
exhibit
31.
This
formula
was
adopted
by
the
learned
trial
Judge
‘‘in
the
absence
of
any
other
formula.”
The
concluding
paragraph
of
his
reasons
for
Judgment
reads
as
follows
:
“During
the
course
of
the
hearing,
Mr.
Walter
J.
Macdonald,
a
Chartered
Accountant
of
considerable
experience,
was
called
by
the
appellant
(the
company)
to
give
evidence
and
to
present
an
analysis
of
the
earnings
of
the
Company.
He,
also,
presented
a
formula
which
appears
to
me
to
provide
a
reasonable
method
of
proportionment
of
profit
as
between
the
Manufacturing
and
Selling
Divisions.
It
is
prepared
on
a
pro-ration
of
costs
basis,
and,
in
the
absence
of
any
other
formula,
or
failure
to
exercise
the
powers
given
to
the
Minister
as
above
indicated,
I
direct
that
it
shall
be
applied
in
determining
the
tax
payable
by
the
appellant.
‘
‘
In
the
formal
order
that
was
taken
out
the
actual
amount
of
the
profit
for
each
year
on
which
the
tax
is
payable
is
set
out.
Mr.
Cousley,
very
properly
in
my
opinion,
declined
to
submit
an
alternative
formula,
because
he
took
the
position
that
see.
24
does
not
contemplate
any
apportionment
of
the
kind
suggested
here.
I
am,
therefore,
back
to
the
question
of
what
is
the
meaning
of
see.
24.
I
agree
with
Mr.
Cousley
‘s
contention
that
sec.
24
is
not
a
taxing
section.
I,
also,
agree
with
him
that
sec.
9
is
the
taxation
section.
He
argues
that
sec.
24
is,
in
effect,
an
exception
to
sec.
9.
I
think
that
a
better
way
to
put
it
is
to
say
that
sec.
24
furnishes
a
statutory
definition
of
taxable
income
which
is
to
be
applied
to
cases
coming
within
sec.
24.
We
were
referred
to
a
large
number
of
cases
for
the
purpose
of
assisting
us
in
interpreting
sec.
24.
On
the
meaning
of
the
expression
6
‘
carrying
on
business
in
Manitoba’’
contained
in
sec.
24,
Mr.
Cousley
referred
us
to
Stroud’s
Judicial
Dictionary,
Vol.
1,
p.
235
(defining
‘‘
business”?
and
distinguishing
it
from
"trade”)
;
Grainger
v.
Gough,
[1896]
A.C.
325,
at
343;
and
Werle
v.
Colquhoun,
2
Reports
of
Tax
Cases,
402,
at
410.
In
view
of
the
admission
by
Mr.
Williams
that
the
respondent
is
carrying
on
business
in
Manitoba
within
the
meaning
of
sec.
24
it
is
unnecessary
to
consider
this
point
further.
That
leaves
for
our
consideration
only
the
questions
of
a
manufacturing
profit
and
the
apportionment
of
profits.
For
convenience
I
shall
now
deal
with
the
cases
cited
by
counsel
in
chronological
order
and
not
in
the
order
in
which
they
were
cited.
1.
Commissioners
of
Taxation
v.
Kirk,
[1900]
A.C.
588.
The
main
importance
of
this
case
is
that
it
was
relied
on
by
Duff,
C.J.,
in
support
of
his
dissenting
Judgment
in
the
International
Harvester
Co.
case,
infra.
The
Kirk
case
arose
under
a
statutory
provision
having
no
resemblance
to
our
sec.
24
and
is,
therefore,
not
in
point.
In
the
Kirk
case
the
company
was
incorporated
in
Victoria
and
had
its
head
office
in
Melbourne
in
that
colony.
It
carried
on
the
business
of
mining
in
New
South
Wales
on
leasehold
lands
held
from
the
Crown
at
Broken
Hill
in
New
South
Wales.
All
the
sales
cf
the
company’s
products
were
made,
and
the
purchase
money
was
received,
either
in
London
or
in
Melbourne.
The
company
made
large
net
profits
from
these
business
operations.
The
New
South
Wales
Income
Tax
Act
imposed
an
income
tax
on
incomes
"
‘
derived
from
lands
of
the
Crown
held
under
lease
or
licence
issued
by
the
Crown,’’
but
provided
that
"‘no
tax
shall
be
payable
in
respect
of
income
earned
outside
the
Colony
of
New
South
Wales.’’
The
contention
of
the
company
was
that
the
income
was
derived
from
the
sales—
that
is,
from
the
business
carried
on
outside
the
Colony
;
and
that
in
the
year
in
question
the
company,
therefore,
did
not
have
any
income
liable
to
taxation
under
the
New
South
Wales
Act.
In
the
special
case
stated
by
the
Court
of
Review
for
the
opinion
of
the
Supreme
Court
the
first
question
asked—and
the
only
one
answered
by
the
Judicial
Committee—was
whether
the
company
had
any
income
in
1897
within
the
meaning
of
the
Act.
Lord
Davey
does
not
discuss
the
meaning
of
‘‘income’’
generally,
but
he
discusses
‘‘this’’
income
in
order
to
ascertain
whether
it
can
be
brought
within
the
language
of
the
Act.
On
that
point
he
says,
at
p.
592:
"‘Their
Lordships
attach
no
special
meaning
to
the
word
‘derived,’
which
they
treat
as
synonymous
with
arising
or
accruing.
It
appears
to
their
Lordships
that
there
are
four
processes
in
the
earning
of
production
of
this
income—(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.
All
these
processes
are
necessary
stages
which
terminate
in
money,
and
the
income
is
the
money
resulting
less
the
expenses
attendant
on
all
the
stages.’’
The
answer
to
the
question
submitted
is
as
follows
(p.
594)
:
“Their
Lordships
are,
therefore,
of
opinion
that
the
first
question
stated
in
the
special
case
on
each
of
these
appeals
should
bave
been
answered
in
the
affirmative,
and
this
is
all
they
are
called
upon
to
say.’’
All
that
the
actual
decision,
therefore,
amounts
to
is
that
it
holds
that
the
statutory
provision
there
in
question
was
effective
to
reach
what
would
not
otherwise
be
regarded
as
income.
2.
Lovell
v.
Commissioner
of
Taxes,
[1908]
A.C.
46.
I
do
not
see
that
this
case
is
of
much
assistance
on
the
present
appeal.
It
is
primarily
concerned
with
the
question
whether
what
the
defendant
there
did
constituted
a
carrying
on
of
business
in
New
Zealand.
In
view
of
the
admission
by
Mr.
Williams
that
the
Wrigley
Co.
is
carrying
on
business
in
Manitoba,
no
such
issue
is
raised
here.
Mr.
Cousley
referred
us
particularly
to
the
argument
of
Danckwerts,
K.C.,
at
pp.
48-49
of
the
report,
which
deals
concisely
and
clearly
with
the
question
of
the
meaning
of
"profits’’
and
when
and
where
they
arise.
The
Judicial
Committee
appears
to
have
adopted
that
argument.
3.
Commissioner
of
Taxation
(N.S.W.)
v.
Meeks
(1915),
19
C.L.R.
568.
This
case
is
the
converse
of
the
Wrigley
case.
It
was
decided
under
a
statutory
provision
corresponding
to
sec.
26
of
our
Act.
In
the
Meeks
case
a
company
incorporated
in
England,
and
having
its
registered
office
in
London,
conducted
its
Australian
business
at
Melbourne
in
Victoria,
and
its
practical
operations
of
mining
and
treating
and
smelting
ore
at
Broken
Hill
and
Cockle
Creek
in
New
South
Wales.
By
a
contract
made
in
London
the
company
agreed
to
sell
to
purchasers
a
large
quantity
of
concentrates
produced
from
Broken
Hill
slimes,
delivery
of
which
was
to
be
made
at
Broken
Hill
in
instalments
extending
over
a
period
of
years.
Pursuant
to
the
contract
the
purchasers
paid
a
sum
of
£63,000
in
advance,
but
before
any
concentrates
were
delivered
they
made
default
in
further
payments
which
had
become
due.
An
agreement
was
then
made
in
London
by
which
the
original
contract
was
cancelled
as
from
the
date
of
the
cancelling
agreement,
and
the
company
was
to
be
entitled
to
retain
for
its
use
all
moneys
which
had
been
paid
under
the
contract.
No
concentrates
or
slimes
were
ever
appropriated,
set
apart,
or
treated
by
the
company
for
the
purchasers.
Of
the
£63,000,
the
balance
held
by
the
company,
after
deductions
of
commission
and
brokerage,
was
£61,425.
The
question
submitted
for
decision
was
whether
this
sum
was
taxable
income
within
the
meaning
of
the
New
South
Wales
Income
Tax
Acts
(p.
578).
The
contention
of
the
company
was
that
this
sum
was
not
income
within
the
meaning
of
the
Act
and
was,
therefore,
not
subject
to
income
tax
(p.
570).
The
special
case
was
submitted
on
the
theory
that
the
amount
in
question
was
"
i
either
wholly
free
or
wholly
liable”
(pp.
580,
591);
but
during
the
argument
Isaacs,
J.,
pointed
out
that
the
proper
inquiry,
in
view
of
the
definition
of
income
contained
in
sec.
4
of
the
Act,
was
whether
the
whole
or
any
part
of
it
was
income
derived
from
any
source
in
the
State
of
New
South
Wales,
and
that
on
investigation
of
the
facts
it
might
appear
that
part
of
it
was
such
income
and
some
not
(p.
591).
The
case
was,
therefore,
dealt
with
by
the
Court
on
that
footing.
The
taxing
provision
(sec.
4)
on
which
the
appeal
turned
is
summarized
by
Isaacs,
J.,
as
follows,
at
p.
581
:
"The
only
income
that
is
taxed
under
the
Act
of
1912
is
‘income
derived
from
any
source
in
the
State.’
That
income
is
divided
by
the
Act
into
two
classes,
viz.,
‘income
derived
from
personal
exertion’
and
income
derived
from
property.’
”’
Griffith,
C.J.,
states
the
issue
to
be
decided
as
follows,
at
p.
579
:
‘““The
Act
uses
the
word
‘source’
in
connection
with
income
to
denote
a
concept
to
which
locality
can
be
attributed.
The
first
question
for
determination,
therefore,
is
what
was
the
source
from
which
this
income
was
derived.
The
next
question
is
what
is
the
locality
of
that
source.
’
’
See.
19(2)
of
the
Act
provides
that
in
the
case
of
a
taxpayer
‘‘carrying
on
business
both
in
and
outside
of
the
State
his
taxable
income
shall
be
deemed
to
be
a
sum
which
shall
bear
the
same
proportion
to
the
net
profits
of
such
business
as
the
assets
of
the
business
in
the
State
bear
to
the
total
assets
of
the
business.
’
’
It
was
held
that
the
sum
in
question
should
be
treated
as
profits
from
the
business
of
mining
and
treating
and
smelting
ore
which
was
carried
on
by
the
company
mainly,
if
not
altogether,
in
New
South
Wales,
and,
therefore,
that
it
should
be
brought
into
account
in
ascertaining
the
taxable
income
of
the
company,
subject,
however,
to
the
right
of
the
company
to
show
that
a
portion
of
it
was
not
attributable
to
the
business
which
was
carried
on
in
New
South
Wales.
It
should
be
noted
that
the
language
of
the
section
(sec.
4)
there
in
question
differs
very
materially
from
our
sec.
24,
and
that
there
is
also
an
express
statutory
provision
for
the
apportionment
of
income
which
is
not
contained
in
our
sec.
24.
The
decision
turns
entirely
on
these
statutory
provisions.
I
am,
therefore,
unable
to
see
that
this
case
has
any
bearing
on
the
case
at
bar.
4.
Commissioner
of
Taxes
v.
British
Australian
Wool
Realization
Association,
[1931]
A.C.
224.
Pursuant
to
an
agreement
between
the
Imperial
and
Commonwealth
Governments,
the
respondent
company
was
incorporated
in
1920
in
Victoria,
with
a
head
office
in
Melbourne,
for
the
purpose
of
selling
the
undisposed
of
surplus
of
wool
acquired
for
the
war,
and
distributing
the
proceeds.
The
wool
was
all
sold
during
the
years
1921
to
1924.
The
contracts
of
sale
were
made,
and
deliveries
and
payments
thereunder
took
place,
outside
Australia.
A
large
surplus
was
realized
from
such
sales,
and
the
respondent
also
received
a
large
amount
for
commission
on
the
sale
of
the
portion
of
the
wool
owned
by
the
Imperial
Government.
Sec.
35
of
the
Income
Tax
Act,
1915,
of
Victoria,
provides:
“‘So
far
as
regards
any
company
liable
to
pay
tax,
the
income
thereof
chargeable
with
tax
shall
.
.
.
be
the
profits
earned
in
or
derived
in
or
from
Victoria
by
such
company
during
the
year
immediately
preceding
the
year
of
assessment.’’
Under
this
provision
Victoria
made
an
assessment
on
the
respondent
in
respect
of
the
proportion
of
the
surplus
and
commission
which
it
regarded
as
being
earned
in
or
derived
in
or
from
Victoria
within
the
meaning
of
sec.
35
of
the
Act.
It
was
held
that
the
surplus
resulted
merely
from
the
realization
of
capital
assets,
and,
therefore,
no
part
of
it
was
income
chargeable
to
tax
under
sec.
35
of
the
Act.
It
was
further
held
that
no
part
of
the
surplus,
or
of
the
commission,
could
properly
be
classed
as
profits
"earned’’
by
the
Association
;
"
"
and
even
more
clearly,
if
that
be
possible,
were
they
not
earned
by
it
‘in
or
derived
in
or
from
Victoria’
”
(p.
256).
It
is
this
final
statement
which
has
a
bearing
on
this
appeal.
It
appears
to
me
that
it
disposes
of
the
apportionment
theory
put
forward
by
the
respondent
in
the
case
at
bar,
and
supports
Mr.
Cousley’s
contention
that
the
profit
is
made
when
and
where
the
sale
takes
place.
5.
Port
Said
Salt
Association,
Ltd.
v.
Commissioner
of
Income
Tax,
Bengal
(1932),
Gordon’s
Digest
of
Income
Tax
Cases,
161.
The
headnote
reads:
"
Foreign
company
imported
goods
into
India
which
were
sold
at
a
profit,
and
claimed
that,
in
arriving
at
net
profits
of
Indian
sales,
a
deduction
should
be
made
for
manufacturing
profits
earned
in
Egypt.
Held:
Non-deductible.
’
’
Mr.
Gordon’s
digest
of
the
judgment
reads
in
full
as
follows:
"RANKIN,
C.J.—The
assessees
have
their
headquarters
in
Egypt
where
they
manufacture
salt
and
export
it
to
various
parts
of
the
world
including
India.
They
have
raised
the
following
question
:—Is
an
assessee
assessed
under
section
42
in
respect
of
a
business
in
which
the
manufacture
of
a
commodity
takes
place
in
a
foreign
country
and
the
sale
thereof
takes
place
in
British
India,
entitled
in
computing
the
profits
and
gains
of
such
business,
to
make
a
deduction
representing
the
proportion
of
profits
earned
by
manufacturing
in
the
country
of
origin,
or
is
he
bound
in
computing
such
profits
or
gains,
to
do
so
on
the
assumption
that
the
whole
of
these
are
earned
in
the
country
of
sale?
Profit,
though
it
may
be
anticipated
by
valuation
or
otherwise,
is
not
realized
before
price,
and
when
the
article
is
sold
the
whole
profit
is
realized
for
the
first
time.”
The
Indian
Income
Tax
Act
is
set
out
in
the
Appendix,
commencing
at
p.
130.
Sec.
42
thereof,
which
was
construed
in
the
above
case,
is
set
out
at
p.
134
of
the
Appendix.
Mr.
Williams
sought
to
distinguish
this
case
on
the
ground
that
sec.
42
of
the
Indian
Income
Tax
Act,
under
which
it
was
decided,
differs
materially
from
our
sec.
24.
I
am
unable
to
detect
any
difference
in
substance
between
these
to
statutory
provisions;
and,
in
my
opinion,
this
decision
is
a
direct
authority
in
favor
of
the
appellant’s
contentions
on
this
appeal.
6.
Commissioner
of
Taxation
(N.S.W.)
v.
Hillsdon
Watts
Ltd.
(1937),
57
C.L.R.
36.
This
is
a
decision
of
the
High
Court
of
Australia.
I
do
not
see
that
it
has
any
bearing
on
this
appeal.
It
was
decided
under
a
statutory
provision
which
provided
for
the
apportionment
of
income
according
to
the
“sources”
from
which
it
was
derived,
and
the
apportionment
of
income
that
was
made
was
pursuant
to
that
statutory
provision
(p.
46).
Our
sec.
3
excludes
from
consideration
the
"
‘
sources
’
from
which
the
income
is
derived.
I
am,
therefore,
unable
to
see
that
this
decision
assists
in
any
way
in
the
interpretation
of
sec.
24
of
our
Act.
7.
Gilpin
v.
Commissioner
of
Taxation
for
N.S.W.
(1940),
64
C.L.R.
169.
The
material
portion
of
the
headnote
to
this
case
reads:
“The
taxpayer,
a
company
incorporated
in
Victoria
and
registered
in
New
South
Wales
as
a
foreign
company,
carried
on
the
business
of
a
draper
and
warehouseman
in
ninety-six
retail
shops,
twenty-nine
of
which
were
situate
in
New
South
Wales.
Its
registered
office
was
situate
in
Melbourne
where
its
central
control
and
management
was
located.
Goods
or
stock
for
the
various
shops
in
New
South
Wales
were
dispatched
from
Victoria
and
were
sold
by
retail
in
such
shops,
which
were
staffed
for
that
purpose.
The
prices
at
which
such
goods
or
stock
might
be
sold
were
fixed
by
the
central
management.
All
the
costing
and
accounting
was
done
in
Melbourne.
‘*
Held
that
the
goods
sold
in
the
shops
in
New
South
Wales
were
sold
in
the
course
of
carrying
on
a
business
or
businesses
in
the
State;
therefore,
.
.
.
the
taxpayer
was
properly
assessed
to
income
tax
in
New
South
Wales
in
respect
of
the
whole
of
the
profit
arising
from
the
sale
of
goods
in
that
State.”
8.
International
Harvester
Co.
v.
The
Provincial
Tax
Commission,
[1941]
S.C.R.
325.
This
case
is
important,
because
it
involves
a
statutory
provision
which
is
exactly
the
same
as
our
sec.
24,
and
because
Mr.
Williams
virtually
rests
his
entire
case
on
the
dissenting
judgment
of
Duff,
C.J.,
therein
(concurred
in
by
Davis
and
Taschereau,
JJ.).
The
appeal
was
heard
by
the
full
Court
of
seven
judges.
The
international
Harvester
Co.
had
its
head
office
and
central
management
and
control
at
Hamilton,
Ontario.
It
had
branch
offices
in
Saskatchewan.
It
manufactured
agricultural
implements,
the
manufacture
being
wholly
outside
of
Saskatchewan.
It
sold
its
products
in
Saskatchewan
and
elsewhere.
All
moneys
received
in
Saskatchewan
for
sales
or
in
payment
of
debts,
were
deposited
in
separate
bank
accounts
and
remitted
in
full
to
the
head
office
in
Hamilton.
It
kept
no
separate
profit
and
loss
account
in
respect
of
the
business
done
in
Saskatchewan;
it
kept
at
its
head
office
in
Hamilton
a
profit
and
loss
account
of
its
entire
business.
Sec.
3
of
the
Act
contains
a
comprehensive
definition
of
"in-
come’’
for
the
purposes
of
the
Act.
It
provides,
as
does
sec.
3
of
our
Act,
that
income,
as
applied
to
the
profits
of
a
business,
is
"
profits
.
..
.
received
by
a
person
.
..
from
any
trade,
manufacture
or
business
.
.
.
whether
derived
from
sources
within
Saskatchewan
or
elsewhere.’’
Duff,
C.J.,
expresses
the
opinion
that
the
effect
of
sec.
21a
(our
sec.
24)
"‘is,
for
the
purpose
of
that
section
to
delete
from
the
definition
of
income
in
section
3
the
words
‘or
elsewhere’
’’
(p.
331).
Sec.
4
enacts
that
the
following
incomes
shall
not
be
liable
to
taxation
:
i(
(m)
profits
earned
by
a
corporation
.
.
.
in
that
part
of
its
business
carried
on
at
a
branch
or
agency
outside
of
Saskatchewan.
‘
‘
Duff,
C.J.,
expresses
the
opinion
that
this
provision
is
primarily
directed
to
companies
having
their
principal
place
of
business
in
Saskatchewan.
There
is
no
corresponding
provision
in
our
Act.
Sec.
21a
provides,
as
does
our
sec.
24,
that
the
income
liable
to
taxation
of
every
person
(including
a
body
corporate)
residing
outside
of
Saskatchewan,
who
is
carrying
on
business
in
Saskatchewan,
"‘shall
be
the
net
profit
or
gain
arising
from
the
business
of
such
person
in
Saskatchewan.”
Sec.
7.(4)
of
the
Act
provides
that,
where
the
Minister
is
unable
to
determine
or
to
obtain
the
information
required
to
ascertain
the
income
within
the
province
of
any
corporation,
the
Lieutenant-Governor
in
Council
may
make
regulations
for
determing
such
income
within
the
province
or
may
fix
or
determine
the
tax
to
be
paid
by
a
corporation
liable
to
taxation.
By
sec.
63
of
the
Act
regulations
made
under
the
authority
of
the
Act
are
declared
to
have
the
same
force
and
effect
as
if
incorporated
therein.
Regulations
were
issued
‘‘covering
such
cases
where
the
Minister
is
unable
to
determine
er
obtain
information
required
to
ascertain
the
income
within
the
province
of
a
corporation
or
a
joint
stock
company
carrying
on
a
trade
or
business
within
and
without
the
province’’
(pp.
347,
348).
A
regulation
(which
was
applied)
provided
that
the
income
liable
to
taxation
"‘shall
be
taken
to
be
such
percentage
of
.
.
.
the
income
as
the
sales
within
the
Province
bear
to
the
total
sales”
(pp.
334,
347);
the
sales
being
measured
by
the
gross
amount
received
from
sales
and
other
sources
(certain
kinds
of
receipts
being
excluded).
The
regulations
went
on
to
provide
(sec.
5)
that
they
should
not
be
applied
to
determine
the
income
within
the
province
of
a
corporation
carrying
on
a
trade
or
business
within
and
without
the
province
where
the
method
or
system
of
accounting
used
by
the
taxpayer
enabled
the
Commissioner
to
determine
the
income
of
the
taxpayer
liable
to
taxation.
The
majority
of
the
Court
held
that
the
application
of
the
above
quoted
regulation
was
validly
adopted
in
arriving
at
the
amount
of
the
company’s
profits
or
gains
arising
from
its
business
in
Saskatchewan—a
method
which
was
rendered
necessary
as
a
result
of
the
failure
of
the
company
to
keep
separate
profit
and
loss
accounts
for
the
business
it
carried
on
in
Saskatchewan.
In
fact,
the
company
itself
"‘was
driven
to
the
admission
that
its
exact
and
precise
income
arising
from
its
business
in
Saskatchewan
could
not
be
ascertained,
owing
to
its
method
of
bookkeeping
and
of
keeping
its
profit
and
loss
account”
(p.
353).
The
Court
went
on
to
say
that
the
method
adopted
"‘was
the
only
method
available
to
ascertain
the
income
liable
to
taxation
‘
‘
(p.
353).
The
Court
held
further
that
the
regulation,
and
the
authorizing
statutory
enactment,
were
intra
vires.
The
dissenting
judgment
of
Duff,
C.J.,
on
which
the
respondent
in
the
case
at
bar
rests
his
case,
held
that
the
assessments
were
invalid,
because
the
regulation
pursuant
to
which
they
purported
to
be
made
either
did
not
apply
to
the
company
or
was
ultra
vires.
Having
disposed
of
the
regulation
in
this
manner,
he
next
proceeds
to
examine
the
terms
of
the
Act.
He
says
that
the
profits
of
the
company
are
derived
from
a
series
of
operations,
and
that
the
essence
of
its
profit
making
business
is
a
series
of
operations
as
a
whole,
some
outside
of,
and
some
within,
Saskatchewan.
He
admits
that
that
part
of
the
proceeds
of
sales
in
Saskatchewan
which
is
profits
is
‘‘received’’
in
Saskatchewan,
but
says
that
it
does
not
follow
that
the
whole
of
such
profit
"arises
from’’
that
part
of
the
company’s
business
which
is
carried
on
there
within
the
contemplation
of
sec.
21a
(our
sec.
24).
He
then
sums
up
his
views
as
follows,
at
p.
334:
"Nowhere
does
the
Statute
authorize
the
Province
of
Saskatchewan
to
tax
a
manufacturing
company,
situated
as
the
appellant
company
is,
in
respect
of
the
whole
of
the
profits
received
by
the
company
in
Saskatchewan.
It
is
not
the
profits
received
in
Saskatchewan
that
are
taxable;
it
is
the
profits
arising
from
its
business
in
Saskatchewan,
not
the
profits
arising
from
the
company’s
manufacturing
business
in
Ontario
and
from
the
company’s
operations
in
Saskatchewan
taken
together,
but
the
profits
arising
from
the
company’s
operations
in
Saskatchewan.
’’
Having
made
these
generalizations,
he
does
not
follow
them
up
by
indicating
how
they
are
to
be
applied
to
the
facts
of
the
case
before
him.
He
leaves
that
question
in
the
air,
without
attempting
to
give
any
intelligible
basis
of
arriving
at
the
amount
of
the
company’s
income
arising
from
its
business
in
Saskatchewan.
He
merely
allowed
the
appeal
and
set
the
assessments
aside.
The
only
authority
which
he
cites
is
the
Kirk
case.
He
makes
no
reference
to
any
of
the
other
cases
which
I
have
reviewed
above,
or
to
Erichsen
v.
Last,
Laycock
v.
Freeman,
or
Briton
Ferry
Steel
Co.
v.
Barry,
reviewed
below.
He
purports
to
purports
to
follow
the
Kirk
case,
but
in
my
review
of
that
case
I
have
shown
that
it
was
dealing
with
a
different
problem
and
was
decided
under
a
different
statutory
provision.
It
would,
therefore,
seem
to
be
appropriate
to
apply
here
the
warning
which
he
himself
gave
in
The
King
v.
National
Trust
Co.,
[1933]
S.C.R.
670,
where
he
says,
at
p.
676:
"
"
It
is
an
important
rule
that
the
scope
of
a
decision
should
not,
speaking
generally,
be
determined
by
reference
to
expressions
in
the
judgment,
and
without
regard
to
the
subject
matter
upon
which
the
court
is
pronouncing.
Judgments
must
be
read,
as
the
phrase
is,
secundum
subject
am
materiem.’’
As
I
read
the
Kirk
case,
it
does
not
support
the
dissenting
judgment
in
the
International
Harvester
Co.
ease
in
any
way.
In
the
Kirk
case
the
Judicial
Committee
was
dealing
with
the
facts
of
the
entirely
different
statutory
provision,
and
it
held
that
the
facts
of
the
case
before
it
brought
it
within
that
statutory
provision.
It
affords
no
assistance
in
interpreting
the
statutory
provisions
with
which
Duff,
C.J.,
was
dealing
in
the
International
Harvester
Co.
case
or
with
which
we
have
to
deal
in
the
present
appeal.
It
applied
the
principle
of
apportionment
solely
because
the
statute
expressly
required
that
to
be
done.
9.
Firestone
Tire
and
Rubber
Co.
v.
Commissioner
of
Income
Tax,
[1942]
S.C.R.
476;
[1942]
C.T.C.
254.
The
Firestone
Company
is
a
Dominion
company
having
its
head
office
in
Hamilton,
Ontario
;
it
manufactures
automobile
tires,
etc.,
in
its
plant
in
that
City.
It
has
no
office
or
any
employees
in
British
Columbia.
It
entered
into
a
contract,
called
a
^Distributor’s
Warehouse
Contract,’’
with
MacKenzie,
White
&
Dunsmuir
Limited,
a
British
Columbia
company
doing
business
entirely
within
that
province
as
wholesale
dealers
in
tires,
automobile
accessories,
etc.
The
appeal
turned
on
the
question
whether
this
contract
was
a
contract
of
agency
or
a
contract
of
sale.
Rinfret,
J.,
in
giving
the
judgment
of
the
majority
of
the
Court,
states
the
issue
and
the
decision
of
the
Court
thereon
as
follows,
at
p.
486
:
"Ido
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
Company
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
Company
and
the
MacKenzie
Company
is
one
of
vendor
and
purchaser;
whatever
profits
are
derived
from
it
by
the
Firestone
Company
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.”
Kerwin
and
Hudson,
JJ.,
dissented,
but
they
differed
from
the
majority
of
the
Court
only
on
the
effect
of
the
contract.
On
that
point
Kerwin,
J.,
says,
at
p.
492:
4
‘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.
’
’
Having
reached
this
conclusion,
it
became
necessary
for
him
to
consider
the
incidence
of
the
tax
imposed
by
the
British
Columbia
statute
on
‘‘income
earned
within
the
province
of
persons
not
resident
within
the
province.
’
’
On
this
point
he
says,
at
pp.
494-495:
“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.”
I
cannot
find
anything
in
the
majority
judgment
indicating
any
dissent
from
this
statement
of
the
law.
In
the
absence
of
any
authority
to
the
contrary,
I,
therefore,
accept
it
as
a
correct
statement
of
the
law
applicable
to
the
case
at
bar.
Mr.
Williams
argued
that
there
is
implicit
in
the
reasons
for
judgment
of
Rinfret,
J.,
in
this
case
an
acceptance
by
him
of
the
views
expressed
in
the
dissenting
judgment
of
Duff,
C.J.,
in
the
International
Harvester
Co.
case.
With
this
argument
in
mind,
I
have
read
the
judgment
of
Rinfret,
J.,
with
great
care
and
I
cannot
find
that
it
lends
any
support
to
this
contention.
All
he
says
is
that
the
conclusion
which
he
has
reached
that
the
contract
is
one
of
sale
and
not
of
agency,
makes
it
unnecessary
for
him
to
consider
the
constitutionality
of
the
legislation
imposing
the
tax—an
issue
which
is
not
raised
in
the
case
at
bar.
I
would
also
point
out
that
the
judgment
of
Kerwin
and
Hudson,
JJ.,
in
this
ease
takes
on
added
significance,
because
they
had
before
them
the
dissenting
judgment
of
Duff,
C.J.,
in
the
International
Harvester
Co.
case
and
rejected
it.
It
is
now
necessary
to
consider
what
is
meant
by
the
expression
*
"
The
net
profit
or
gain
arising
from
the
business
of
such
person
in
Manitoba’’
which
is
contained
in
sec.
24.
That
in
turn
raises
the
question
of
what
constitutes
profits
and,
in
particular,
whether,
in
the
computation
of
profits
for
Income
tax
purposes,
there
is
any
such
concept
as
a
manufacturing
profit.
In
his
factum
Mr.
Cousley
puts
his
argument
under
this
head
very
concisely
as
follows:
"‘1.
Section
24
of
the
Act
taxes
the
net
profits
arising
from
the
business,
and
not
operations;
2.
No
profit
arises
from
any
of
the
operations
in
Ontario.
"‘Profits
are
derived,
or
arise
from
only
one
operation,
and
that
is
sale
of
the
goods.
All
preliminary
operations
add
to
the
cost
of
an
article,
and
unquestionably
add
to
its
value,
but
they
do
not
create
one
cent
of
profit.
Profits
are
made
from
sales
only,
and
the
profits
arise
from
such
sales
at
the
place
where
the
contracts
are
made.”
In
my
opinion
there
is,
for
income
tax
purposes,
no
such
thing
as
a
manufacturing
profit,
and
there
is
no
such
thing
as
apportionment
at
common
law
of
profit
as
between
different
departments
of
the
taxpayer’s
business
or
as
between
taxing
jurisdictions,
as
contended
by
Mr.
Williams.
The
question
of
the
meaning
of
sec.
24
is,
therefore,
merely
one
of
statutory
interpretation.
Some
of
the
cases
which
I
have
already
reviewed
bear
on
this
question.
I
shall
refer
to
only
three
additional
cases,
all
of
which
appear
to
me
to
be
directly
in
point.
10.
Erichsen
v.
Last
(1881),
8
Q.B.D.
414
(C.A.).
This
is
a
decision
of
the
Court
of
Appeal
in
England
and
was
referred
to
by
counsel
as
the
leading
case
on
the
point
with
which
I
am
now
dealing.
The
questions
to
be
decided
were
whether
the
Great
Northern
Telegraph
Company,
which
was
a
foreign
company
established
at
Copenhagen,
exercised
a
trade
within
the
United
Kingdom,
and,
if
so,
what
was
the
profit
arising
therefrom
in
respect
of
which
the
company
was
taxable
under
the
Income
Tax
Act.
That
Act
imposed
a
tax
on
"‘the
annual
profits
or
gains
arising
or
accruing
to
any
person
whatsoever
.
.
.
from
any
.
.
.
trade
.
.
.
exercised
within
the
United
Kingdom.’’
This
is
substantially
the
same
as
the
language
of
our
sec.
24.
The
company
had
three
marine
cables
in
connection
with
the
United
Kingdom.
It
had
its
principal
place
of
business
in
Copenhagen,
but
had
offices
and
servants
in
various
parts
of
the
United
Kingdom,
where
telegraphic
messages
were
received
for
transmission
to
various
part
of
the
world.
The
Queen’s
Bench
Division
held
that
the
company
exercised
a
trade
in
the
United
Kingdom,
and
that
it
was
liable
to
income
tax
on
the
profit
arising
from
such
trade,
such
profit
being
the
difference
between
the
sums
received
in
the
United
Kingdom
for
the
transmission
of
messages,
and
the
cost
of
such
transmission
without
deduction
for
the
trade
profit
from
the
use
of
the
company’s
own
cables
abroad.
The
company
appealed.
On
the
appeal
Jessel,
M.R.,
after
deciding
that
the
company
was
exercising
a
trade
within
the
meaning
of
the
statute,
said,
at
p.
417:
"‘The
next
point
is
the
question
of
profits.
Now
what
is
profit?
It
is,
as
I
understand,
the
difference
between
the
price
received
on
a
sale
and
the
cost
price
of
what
is
sold.
There
may
be
the
expense
of
management
or
of
the
establishment
in
which
the
profit
is
earned,
but
that
is
only
an
element
in
the
cost
price.
The
difference
between
money
received
for
goods
sold
and
money
received
for
messages
is
to
my
mind
inappreciable.
One
must
take
the
money
received
and
deduct
from
that
what
it
costs
the
company
to
transmit
the
messages,
and
the
difference
is
the
profit,
and
upon
that
difference
the
company
ought
to
be
taxed.
But
then
it
is
said
that
the
profit
is
earned
in
this
way
:
The
Company
have
abroad
cables
belonging
to
them
which
are
not
connected
with
this
country
directly
(there
being
foreign
cables
intervening
between
the
company’s
cables
abroad
and
the
cables
connected
with
this
country),
and
that
those
cables
are
used
by
them
to
convey
the
messages
and
so
earn
the
profit,
and
that,
that
profit
ought
to
be
deducted.
The
answer
is,
that
those
cables
do
not
earn
a
profit.
The
use
of
them
by
the
company
may
diminish
the
expense
of
earning
a
profit,
therefore
diminish
the
cost
price,
that
is
to
say,
the
cost
of
transmitting
the
message
aboard,
but
it
is
a
fallacy
to
say
that
those
cables
earn
a
profit.
Consequently
the
company
can
only
deduct
from
the
price
received
the
cost
of
transmitting
the
message.
It
seems
to
me,
therefore,
that
the
decision
of
the
Court
below
is
correct
and
ought
to
be
affirmed.
‘
’
In
a
concurring
judgment
Cotton,
L.J.,
disposes
of
the
company’s
claim
that
it
was
entitled
to
deduct
a
trade
profit
(corresponding
to
the
manufacturing
profit
claimed
in
the
case
at
bar)
as
follows,
at
p.
420
:
“They
can,
of
course,
deduct
all
expenses,
including
their
own
expenses,
and
sums
paid
to
other
companies,
but
they
cannot
deduct
a
profit
which
is
imaginary
and
has
no
real
existence/
‘
11.
Laycock
v.
Freeman,
[1939]
2
K.B.
1
(C.A.)
This
is
also
a
decision
of
the
Court
of
Appeal
in
England.
The
respondent
company
carried
on
a
large
retail
boot
and
shoe
business
with
numerous
branches.
Before
April,
1935,
the
company
did
not
manufacture
its
goods,
but
bought
from
wholesale
manufacturers.
Included
amongst
these
were
two
subsidiary
companies,
whose
works
were
at
Kettering
and
Leicester.
The
company
owned
the
whole
of
the
capital
in
these
two
subsidiary
companies
and
bought
the
whole
of
their
output.
In
March,
1935,
the
two
subsidiary
companies
went
into
voluntary
liquidation
and
the
whole
of
their
businesses
and
premises
were
assigned
to
the
respondent
company
on
April
1st.
From
and
after
April
1st
separate
accounts,
made
up
as
when
the
two
companies
were
in
existence,
were
kept
for
the
factories
of
the
two
companies
as
departments
of
the
company,
who
sold
at
retail
the
whole
of
the
finished
products
of
these
factories.
The
method
of
accounting,
which
showed
in
each
case
the
cost
of
purchases
made
for
the
factory,
and
a
figure
for
sale
arrived
at
by
the
addition
of
an
arbitrary
percentage
for
profit,
was
then
same
as
that
which
had
been
followed
before
April
1st,
1935,
in
relation
to
the
small
amount
of
manufacture
then
done
by
the
company.
The
Special
Commissioners
under
the
Income
Tax
Act
held
that
‘‘in
the
year
1935-36
the
respondents
made
one
profit
only,
and
that
the
profit
could
not
for
income
tax
purposes
be
divided
into
a
manufacturing
profit
and
a
retail
profit^
(pp.
3-4).
Sir
Wilfrid
Greene,
M.R.,
who
delivered
the
unanimous
judg-
ment
of
the
Court
of
Appeal,
affirming
the
judgment
appealed
from,
says
on
this
point,
at
p.
10
:
‘
‘‘
Manufacture
in
these
factories
is
being
carried
on,
but
the
mere
manufacturing
is
not
the
thing
which
produces
the
profit
of
the
business.’’
It
is
of
interest
to
note
that
it
was
the
Crown
that
sought
to
split
up
the
profit
into
two
profits,
the
wholesaler’s
profit
and
the
retailer’s
profit.
In
holding
that
this
was
"‘wholly
illegitimate”
the
Court
said,
at
p.
11:
<(
These
is
no
such
thing
in
a
case
of
this
kind,
for
any
income
tax
purpose,
as
a
wholesaler’s
profit;
it
is
wholly
non-existent.
The
expression
is
a
convenient
one
from
the
point
of
view
of
accountants,
whose
task
it
is
to
dissect
profits
and
attribute
them
in
part
to
one
aspect
of
their
client’s
activities,
and
in
part
to
another
aspect
of
their
client’s
activities.
Obviously
a
wholesaler
makes
a
wholesaler’s
profit
;
a
retailer
makes
a
retailer’s
profit;
but
to
say
of
a
manufacturer
who
sells
retail
that
he
makes
two
profits,
a
wholesaler
’s
profit
and
a
retailer’s
profit—although
for
accountancy
purposes
it
may
be
very
convenient
and
useful
that
the
accounts
should
be
kept
on
that
basis—has
no
reality
in
fact,
since
no
profit
is
realized
until
the
goods
are
sold,
and
the
profit
that
is
realized
is
the
profit
realized
by
disposing
of
the
goods
by
sale.
It
is
quite
impossible,
in
my
judgment,
to
say
that
the
present
case
ought
to
be
treated
as
though
there
had
taken
place
a
notional
sale
by
the
factory
to
the
warehouse
upon
some
basis
to
be
fixed
by
reference
to
some
evidence
as
to
what
a
wholesaler’s
profit
would
be.
I
know
of
no
such
principle
permissible
under
the
Income
Tax
Act.’’
I
would
point
out
that
what
is
referred
to
in
the
above
passage
as
a
"wholesaler's
profit”
and
is
condemned,
is
the
same
as
that
referred
to
in
the
case
at
bar
as
a
‘‘manufacturing
profit.
’
12.
Briton
Ferry
Steel
Co.
v.
Barry,
[1940]
1
K.B.
463
(C.A.).
This
is
a
a
decision
of
the
Court
of
Appeal
in
England.
The
unanimous
judgment
of
the
Court
was
delivered
by
Sir
Wilfrid
Greene,
M.R.,
who
explains
his
decision
in
the
Laycock
case.
The
facts
of
the
two
cases
are
similar.
The
Briton
Ferry
Steel
Co.
(hereinafter
called
"‘The
company’’)
carried
on
the
business
of
making
steel
bars,
which
it
sold
partly
to
outside
customers
and
partly
to
six
subsidiary
companies,
which
used
them
in
the
manufacture
of
tinplate.
On
April
7th,
1934,
the
subsidiary
companies
were
wound
up
and
their
assets
and
undertakings
transferred
to
the
company.
After
that
date
the
mills
of
the
subsidiary
companies
became
branch
mills
of,
and
were
operated
by,
the
company
(p.
465).
The
question
for
decision,
so
far
as
material
here,
was
how
the
amount
of
the
company’s
profits
were
to
be
ascertained.
The
particular
problem
was
whether
the
company
was
entitled
to
charge
the
steel
bars
to
the
subsidiaries
at
a
profit
over
the
actual
cost
of
production.
It
was
held
that
this
could
not
be
done,
as
this
method
would
be
‘‘
based
on
an
imaginary
sale
price
at
a
profit’’
(p.
484).
It
was
further
held
that,
these
transactions
being
in
their
essence
inter-departmental
transactions,
the
steel
bars
must
be
charged
up
"‘at
the
actual
cost
of
production’’
(p.
484),
"‘without
introducing
at
any
stage
any
notional
sale’’
(p.
482).
The
Court
stresses
this
point
by
repeating
that
the
method
of
computation
of
profits
which
it
has
laid
down
"
"
does
not
involve
any
notional
sale
at
all
or
any
notional
profit
realized
inter-departmentally
”
(p.
487).
The
Court
further
held
that
‘‘the
profits
are
ultimately
made
by
the
sale
of
the
finished
product’’
(p.
483).
I
call
attention
to
the
fact
that
the
verb
used
is
"
‘
made.
‘
‘
The
statement
is
that
the
profits
are
((
made
by
the
sale.’’
Mr.
Williams
concedes
that
there
is
only
one
profit,
but
he
says
that
it
arises
in
part
from
the
company’s
manufacturing
business
in
Ontario
and
only
in
part
from
the
company’s
business
in
Manitoba.
He,
therefore,
argues
that,
having
ascertained
the
amount
of
the
profit,
it
is
necessary
to
work
back
from
there
and
to
ascertain
to
what
extent
the
operations
in
Ontario
have
contributed
to
the
profit
and
then
to
apportion
the
profit
accordingly
between
Manitoba
and
Ontario.
To
me
this
position
is
untenable.
What
is
done
in
Ontario
represents
merely
something
which
is
part
of
the
cost
to
the
company
of
the
finished
product;
it
represents
cost,
not
profit.
If
the
manufacturing
operations
in
Ontario
are
carried
on
efficiently
and
economically,
they
may,
in
the
language
of
Erichsen
v.
Last,
diminish
the
expense
of
earning
the
profit,
but
that
is
all.
Walter
J.
Macdonald,
C.A.,
who
was
called
as
an
expert
by
the
company,
defined
profit
in
almost
the
identical
language
used
in
Erichsen
v.
Last,
when
he
said
(Ed.,
p.
112)
:
"There
are
many
factors
which
go
to
arrive
at
the
final
cost
of
the
product
delivered
to
a
customer.
The
difference
between
that
final
cost
and
the
selling
price
which
is
realized
is
the
profit.^
In
his
reasons
for
judgment
Major,
J.,
followed
the
dissenting
judgment
of
Duff,
C.J.,
in
the
International
Harvester
Co.
case.
He
gave
effect
to
the
manufacturing
profit
theory,
and
held
that
the
ultimate
profit
should
be
apportioned
on
that
footing
between
Ontario
and
Manitoba,
and
he
directed
that
the
apportionment
be
made
in
accordance
with
the
formula
put
forward
by
Walter
J.
Macdonald,
C.A.
The
formula
so
adopted
is,
of
course,
of
no
value,
unless
it
is
first
established
(1)
that
see.
24
of
our
Act
provides
for
the
apportionment
and
(2)
that
the
formula
suggested
is
that
prescribed
by
the
Act.
It
seems
to
me
that
the
respondent
has
failed
to
establish
either
proposition.
Mr.
Williams,
as
already
mentioned,
admitted
that
"‘the
law
itself
does
not
provide
the
formula’’
(Ev.,
p.
113).
In
my
opinion
sec.
24
neither
provides
for
nor
contemplates
an
apportionment
of
the
profit.
I
draw
from
the
provisions
for
apportionment
contained
in
sees.
23,
26,
27,
and
27A
exactly
the
opposite
conclusion
from
that
drawn
by
Major,
J.
To
me
they
show
that
where
the
Legislature
intended
that
there
should
be
an
apportionment
it
had
no
difficulty
in
expressing
that
intention
in
clear
and
unambiguous
language.
I
am
also
very
much
impressed
with
the
force
of
Mr.
Cousley’s
argument
that
in
all
cases
where
the
Act
provides
for
apportionment
the
Act
gives
the
Minister
full
discretion
as
to
the
manner
of
determining
the
proportionate
part
of
income
or
profit
taxable
in
this
province,
and
that
it
is
inconceivable
that
any
legislature
would
pass
an
Act
providing
for
apportionment
without
giving
the
Minister
arbitrary
power
to
make
the
apportionment.
I
adopt
that
argument.
Having
reached
this
conclusion,
and
having
adopted
the
statement
of
the
law
in
the
judgment
of
Kerwin,
J.,
in
the
Firestone
case,
at
pp.
494-495,
quoted
supra,
it
follows
that
the
judgment
of
Major,
J.,
must
be
set
aside.
I
would
allow
the
appeal
with
costs
here
and
in
the
Court
of
King’s
Bench
and
would
restore
the
decision
of
the
Minister
which
Major,
J.,
set
aside.
Dysart,
J.A.
(ad
hoc)
:—I
have
had
the
advantage
of
reading
the
reasons
for
judgment
of
the
learned
Chief
Justice
and
Justice
Bergman,
but
am
unable
to
agree
with
the
conclusions
they
have
reached.
In
their
reasons,
they
set
forth
the
statutory
provisions
governing
this
case,
and
the
more
important
facts,
with
sufficient
fullness
to
make
it
unnecessary
for
me
to
restate
them
at
length.
I
shall
only
refer
to
such
of
them,
and
to
such
further
details,
as
may
be
required
for
a
proper
exposition
of
my
own
views.
Several
questions
are
presented
for
our
decision.
The
first
and
main
question
is
a
double
one—of
the
law
and
fact.
The
question
of
law
is:
what
is
the
meaning
of
the
taxing
provisions
of
our
Income
Taxation
Act
as
applied
to
the
facts
of
this
case
?
Those
provisions
impose
an
income
tax
upon
that
part
of
the
^income”
of
the
respondent
as
a
non-resident
person
or
corporation,
being
"‘the
net
profit
or
gain
arising
from
the
business
of
such
person
in
Manitoba.’’
^Income”
is
defined
in
the
Act
(s.
3)
as
being
"‘the
annual
net
profit
or
gain
.
.
.
received
by
a
person
from
any
.
.
.
business
.
.
.
whether
derived
from
sources
within
Manitoba
or
elsewhere;
.
.
.”
(Italics
are
mine.)
By
expressly
confining
the
taxable
income
to
the
net
profit
arising
from
business
carried
on
inside
Manitoba
by
non-residents,
the
Act
impliedly
excludes
from
that
taxation,
any
profits
arising
from
the
business
of
such
persons
carried
on
outside
Manitoba.
The
express
inclusion
of
the
one
sort
of
income
as
taxable,
is
the
implied
exclusion
of
the
other.
Some
Income
Taxation
Acts
go
to
the
trouble
of
declaring
expressly
what
the
Manitoba
Act
so
declares
impliedly
;
e.g.,
those
of
Saskatchewan
(see
International
Harvester
ease,
infra.)
and
of
New
South
Wales
(see
the
Kirk
case,
infra.).
But
the
meaning
of
all
these
Acts
on
this
point
is
one
and
the
same—namely,
that
profits
arising
from
business
carried
on
outside
the
taxing
jurisdiction
are
not
taxable
by
that
jurisdiction.
The
strength
of
this
implied
exclusion
of
extra-provincial
income
in
our
Act,
is
increased
by
other
provisions
of
the
Act.
For
instance:
s.
23
empowers
our
Provincial
Treasurer
to
""determine
the
fair
price’’
of
goods
bought
in
Manitoba
by
a
resident
company
from
a
parent,
subsidiary,
or
associated
nonresident
company.
That
provision
recognizes
that
profits
may
be,
and
probably
are,
earned
by
the
processes
through
which
the
goods
so
purchased
in
Manitoba
passed
before
they
came
to
Manitoba
to
be
sold.
And
sec.
26
empowers
the
Minister
to
determine
the
proportionate
part
of
the
profit
earned
in
Manitoba
by
the
manufacture
in
Manitoba
of
goods
subsequently
exported
and
sold
elsewhere.
Unless
profit
can
be
earned
by
manufacturing
process,
this
section
is
empty
of
meaning.
These
provisions,
it
seems
clear,
recognize
that
profits
on
goods
may
be
earned
by
processes
or
operations
carried
on
outside
Manitoba
leading
up
to
the
sale
of
the
goods
in
Manitoba,
and
that
such
profits
are
not
properly
taxable
by
Manitoba.
They
seem
also
to
afford
a
complete
answer
to
the
contention
of
Mr.
Cousley,
acting
for
the
Minister—that
they
declare
that
profits
on
the
goods
in
this
case
arose
only
at
the
time
and
place
of
sale
here.
They
support
the
view
of
Mr.
Williams,
for
the
respondent—that
the
provisions
acknowledge
that
the
profits
arising
from
the
sale
of
the
goods
in
Manitoba
may
be
and
are
less
than
the
whole
net
profit
arising
from
the
combined
operations
of
manufacture
in
Ontario
and
sale
in
Manitoba.
They
justify
also
the
conclusion
of
the
trial
Judge—Justice
Major—that
only
a
portion
of
the
net
profits
arising
from
all
the
operations
can
be
said
to
arise
from
Manitoba
business
within
the
meaning
of
our
Act.
On
this
question
of
law,
my
view
therefore
is
that
our
Act
does
not
of
itself
impose
taxation
upon
all
the
net
profit
received
by
the
Wrigley
Company
on
its
goods
so
manufactured
and
sold—but
on
the
contrary,
quite
clearly
confines
that
taxation
to
such
portion
of
the
entire
net
profits
as
in
fact
arise
from,
or
may
reasonably
be
attributed
to,
the
Manitoba
share
of
the
entire
business
of
the
Company.
The
question
of
fact
which
is
involved
in
our
main
question
is—what
profits
actually
arose
from
the
business
in
Manitoba?
That
this
is
a
question
of
fact,
and
not
of
law,
seems
to
be
not
only
inherently
clear,
but
unequivocally
declared
by
our
highest
Courts.
For
instance:
our
Supreme
Court,
in
the
case
of
International
Harvester
Co.
v.
Commissioner
of
Income
Tax
(of
Sask.),
[1941]
S.C.R.
325,
speaking
through
Rinfret,
J.,
for
the
majority,
at
p.
341,
says:
H
the
question
whether
profits
or
gains
arose
within
or
without
Saskatchewan
is
really
a
question
of
fact.’’
And
the
Privy
Council,
in
Commissioner
of
Taxation
(N.S.W.)
v.
Kirk,
[1900]
A.C.
588,
states,
through
Lord
Davey,
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.
This
is
a
question
of
fact.
’
‘
I
am
aware
that
many
Judges—some
of
them
of
eminence—
are
on
record
as
saying
that
profits
on
goods
arise
wholly
and
solely
at
the
time
and
place
of
the
sale
of
the
goods.
But
those
statements
must
be
read
in
the
light
of
the
particular
facts
of
the
cases
in
which
those
statements
were
made.
In
all—or
at
least
nearly
all—those
cases,
the
crucial
facts
were
different
from
the
facts
in
the
present
case;
in
them,
the
sale
price
was
received
at
the
time
and
place
of
sale;
whereas,
in
this
case
the
price
was
received
in
Ontario
upon
sales
made
in
Manitoba—and
received
30
days
after
the
sales.
In
any
event,
the
weight
and
authority
of
those
statements
must
yield
place
to
the
deliberate
and
considered
statements
which
I
have
quoted
from
our
Supreme
Court
and
the
Privy
Council.
The
term
profit”
means
money
received
as
gain.
‘‘Net
profit’’
on
goods
sold
is
the
money
received,
as
the
price
of
the
goods,
in
excess
of
all
expenses
incurred
in
all
the
operations
connected
with
those
goods
up
to
the
time
of
actual
receipt
of
the
money.
A
“sale”
is
not
a
transaction
in
money—it
is
the
transfer
and
delivery
of
the
ownership
of
the
goods.
Money
is
of
course
associated
with
sales,
as
being
generally
the
considéra-
tion
paid,
or
to
be
paid,
as
the
price
of
the
goods
so
sold;
but
the
sale
is
a
matter
distinctly
separate
and
different
from
the
receipt
of
the
money.
Thus
a
sale,
once
it
is
completed,
remains
effective
even
though
the
price
is
never
paid.
Moreover,
the
measure
of
"‘net
profit’’
is
not
necessarily
set
by
the
contract
price
at
which
the
goods
are
sold—that
price
may
be
wholly
or
partially
uncollectible.
The
real
measure
or
yardstick
of
profit,
is
the
amount
of
money
eventually
received
for
the
goods—less
all
expenses,
including
expenses
and
losses
incurred
in
collecting
it.
To
say
that
the
profits
arose
solely
in
Manitoba
because
the
sales
took
place
here,
is
to
disregard
receipt
of
price
as
the
test
of
profit.
The
use
of
the
term
4
"sale,”
as
meaning
sale
and
receipt
of
price,
is
looseness
of
language—at
least
"‘terminological
inexactitude.’’
If
by
"‘sale,
”
the
appellant
includes
the
receipt
of
the
price,
then
he
confuses
two
distinct
facts.
If
by
it
he
means
receipt
of
the
money,
he
puts
himself
out
of
Court,
because
that
took
place
outside
Manitoba.
In
order
to
show
the
sources
of
profits
in
this
case,
I
shall
briefly
review
the
operations
which,
taken
all
together,
yielded
the
profits.
The
company
is
a
Dominion
company,
with
its
head
office
and
plant
and
management
maintained
in
the
Province
of
Ontario.
There,
it
acquired
the
ingredients
for
its
chewing
gum,
stored
them,
processed
them
and
made
them
ready
for
sale.
From
there,
it
shipped
some
of
the
product
to
Winnipeg
in
carload
lots.
In
Ontario
the
company
created
or
extended
the
Manitoba
demand
for
the
gum
by
advertising
in
various
ways;
there
it
selected
the
jobbers
in
Manitoba
to
whom,
exclusively,
the
gum
might
be
sold
here,
and
set
the
prices
for
sales
to
the
jobbers,
and
the
terms
of
credit,
as
well
as
the
price
to
the
ultimate
consumer.
After
each
sale
in
Manitoba,
the
company
in
Ontario
received
a
copy
of
the
sale
invoice,
checked
it,
and
did
all
things
necessary
or
incidental
to
the
collecting
of
the
price—taking
all
the
risk
and
loss
of
bad
or
doubtful
debts.
All
these
operations
took
place
in
Ontario.
The
Manitoba
branch
received
the
goods;
stored
them
in
the
warehouse;
solicited
orders
from
the
designated
jobbers,
executed
orders
by
shipping
and
delivering
the
gum
and
sending
out
invoices
to
the
purchasers
;
and
then
reported
the
sales,
with
duplicates
of
the
invoices,
to
the
head
office.
That
is
about
all
that
was
done
in
Manitoba.
For
all
these
operations
in
both
Provinces,
adequate
staffs,
premises,
and
facilities,
were
maintained
by
the
head
office.
By
increasing
public
demand
for
the
gum,
the
company
was
able
to
manutacture
and
ship
in
large
quantities;
by
skill
and
planning,
it
otherwise
reduced
the
unit
cost
of
its
product
and
so
increased
the
profit
on
sale.
In
the
same
way,
but
in
varying
degrees,
other
operations
affected
the
ultimate
cost
of
the
goods,
and
so
were
reflected
in
the
net
profits
on
sale.
By
care
in
selecting
purchasers
and
allowing
credit,
the
risk
and
loss
on
the
collection
of
price
were
minimized
and
affected
net
profits.
To
say
that
none
of
these
operations
are
to
be
considered
as
yielding
profit,
except
the
actual
sales
or
the
transfer
and
delivery
of
the
gum
to
jobbers
in
Manitoba,
seems
to
be
a
denial
of
facts.
The
profits
were
the
result
of
all
these
operations
combined—and
surely
they
can
be
said
to
have
arisen
not
from
any
particular
operation
or
operations,
but
rather
from
the
whole
series
of
operations.
As
Duff,
C.J.C.,
in
the
International
Harvester
case
(a
ease
stronger
for
the
appellant
that
this
present
case,
in
that
the
profits
were
received
in
Saskatchewan
where
the
sales
were
made)
said,
at
p.
334:
"
"
It
is
not
the
profits
received
in
Saskatchewan
that
are
taxable;
it
is
the
profits
arising
from
its
business
in
Saskatchewan,
not
the
profits
arising
from
the
company’s
manufacturing
business
in
Ontario
and
from
company’s
operations
in
Saskatchewan
taken
together,
but
the
profits
arising
from
the
company’s
operations
in
Saskatchewan.”
The
actual
distinction
between
the
earning
of
profits
and
the
realizing
of
profits
must
always
be
borne
in
mind.
Profits
that
are
eventually
realized
in
cash
have
been
earned,
or
have
arisen,
all
along
the
way
from
every
operation
from
the
beginning
to
the
end
of
the
series.
The
views
which
I
have
thus
far
expressed
are
supported
by
our
highest
authorities—the
Supreme
Court
of
Canada
and
the
Privy
Council.
From
the
many
eases
cited
to
us,
I
select
for
particular
consideration
only
two—believing
that
all
the
others
turn
upon
their
own
statutes
and
facts,
or
at
least
add
nothing
of
importance.
The
first
case
I
shall
consider
is
Kirk
f
s
case,
[1900]
A.C.
588,
already
mentioned.
That
was
an
appeal
of
two
cases
from
the
Supreme
Court
of
New
South
Wales.
The
facts
briefly
are
that
a
company
of
Victoria
Colony,
extracted
ore
from
leased
Crown
land
in
the
Colony
of.
New
South
Wales;
processed
it
there;
shipped
the
product
to
London,
and
there
sold
it
and
there
received
the
price
thereof.
The
Land
and
Income
Tax
Assessment
Act
of
New
South
Wales,
by
s.
15,
imposed
a
tax
on
the
income
‘‘(1)
Arising
or
accruing
to
any
person
wheresoever
residing
from
any
.
.
.
trade
.
.
.
carried
on
in
New
South
Wales;”
4
"
(3)
Derived
from
lands
of
the
Crown
held
under
lease
.
.
.
;
(4)
Arising
or
accruing
.
.
.
from
any
other
sourse
whatsoever
in
New
South
Wales
.”
By
s.
27(3)
it
declared
that
"No
tax
shall
be
payable
in
respect
of
income
earned
outside
the
Colony
of
New
South
Wales.”
The
Supreme
Court
of
New
South
Wales,
following
its
own
previous
decision
in
Tindal’s
case
(18
N.S.W.L.R.
378)
held
that
profits
arose
only
in
London,
where
the
goods
were
sold
and
price
received.
The
Privy
Council
reversed
that
decision
and
held
that
some
part
of
the
profits
arose
in
New
South
Wales.
Analysing
the
sources
of
the
income,
Lord
Davey
said,
at
p.
592:
"‘It
appears
to
their
Lordships
that
there
are
four
processes
in
the
earning
or
production
of
this
income—(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.
All
these
processes
are
necessary
stages
which
terminate
in
money,
and
the
income
is
the
money
resulting
less
the
expenses
attendant
on
all
the
stages.”
He
then
applied
those
principles
and
held
that
the
first
process
(extraction
of
ore)
gave
rise
to
income
‘‘derived
from
land
.
.
.
,
”
and
that
the
second
process—a
manufacturing
one—
gave
rise
to
income
from
"
"
trade”
or
certainly
‘‘any
other
source’’
within
the
meaning
of
the
Act.
He
then
reiterates
that
"‘so
far
as
relates
to
these
two
processes
.
.
.
the
income
was
earned
and
arising
and
accruing
in
New
South
Wales.’’
He
says
that
their
Lordships
‘‘attach
no
special
meaning
to
the
word
‘derived,’
which
they
treat
as
synonymous
with
arising
or
accruing.”
It
is
clear
from
the
judgment
that
they
treat
the
word
‘‘earned’’
as
but
another
synonym
of
‘‘arise.’’
At
p.
592
he
says:
“The
Supreme
Court
have
thought
in
Tindal’s
case
and
in
these
cases
that
the
Income
was
not
earned
in
New
South
Wales
because
the
finished
products
were
sold
exclusively
outside
the
Colony.
’
‘
And
at
p.
593
:
‘
The
fallacy
of
the
judgment
of
the
Supreme
Court
in
this
and
in
T'indal’s
case
is
in
leaving
out
of
sight
the
initial
stages,
and
fastening
their
attention
exclusively
on
the
final
stage
in
the
production
of
the
income.”
It
is
to
be
noted
that
the
Kirk
case
(1)
expressly
declares
what
is
impliedly
recognized
by
the
Manitoba
Act;
1.e.,
that
some
part
of
such
income
may
be
‘‘earned’’
outside
the
taxing
jurisdiction;
(2)
that
the
mining
of
ore,
and
the
manufacturing
of
it,
can
and
do
contribute
to
the
earning
of
income;
(3)
that
whole
income
arises
from
the
whole
series
of
operations;
(4)
that
the
New
South
Wales
Act
is
very
similar
to
our
own;
and
(5)
that
the
facts
of
that
case,
although
reversed,
are
not
only
very
similar,
but
are
stronger
for
the
taxing
authority
than
the
facts
in
the
present
case.
No
ease
cited
in
any
degree
destroys
or
weakens
the
applicability
to
the
present
case
of
the
principles
laid
down
in
that
case.
It
seems
to
me
to
answer
completely
the
appellant’s
argument.
The
only
other
case
I
wish
to
consider
at
length
is
International
Harvester
Co.
of
Canada
v.
Provincial
Tax
Commissioner
[1941]
S.C.R.
325,
to
which
I
have
already
made
reference.
On
its
facts,
that
case
was
similar
to
the
present
case,
in
that
an
Ontario
company
manufactured
in
Ontario
agricultural
machinery
which
it
then
sold
through
its
branch
office
in
Saskatchewan;
but
is
dissimilar
in
that
it
received
the
price
of
the
machinery
not
in
Ontario
but
in
Saskatchewan.
The
relevant
taxing
provisions
are
virtually
identical
with
ours—imposing
a
tax
on
the
‘‘net
profit
or
gain
arising
from
the
business’?
carried
on
by
the
company
in
Saskatchewan.
Regulations
passed
under
the
Act,
stipulate
that
income
so
taxable,
apart
from
certain
items,
‘‘shall
be
taken
to
be
such
percentage
of
the
remainder
of
the
income
as
the
sales
within
the
Province
bear
to
total
sales.”
These
Regulations
had
been
passed
to
enable
"‘the
Minister
.
.
.
to
fix
or
determine
the
tax
to
be
paid
.
.
.
’’
in
cases
where
he
is
‘‘
unable
to
determine,
or
to
obtain
information
to
ascertain
the
income
within
the
province
.
.
.
.”
Regulation
No.
4
declares
that
the
method
prescribed
is
for
the
purpose
of
determining
the
income
‘‘reasonably
attributable
to
business
and
sources
within
the
Provinee.’’
The
Act,
sec.
4m,
expressly
exempts
from
taxation
“profits
earned
by
a
corporation
.
.
.
in
that
part
of
its
business
carried
on
at
a
branch
or
agency
outside
of
Saskatchewan.”
Because
the
appellant
Company
did
not
and
could
not
furnish
the
Minister
with
the
required
information,
the
taxable
income
was
determined
by
the
Minister
under
the
Regulations.
The
Supreme
Court
held
by
a
majority
of
4
to
3
that
the
Regulations
were
intended
to
confine
taxation
to
income
arising
within
the
Province,
and
that
they
had
been
so
applied;
that
they
provided
the
best
available
method
of
determining
that
income;
that
their
application
was
necessary
if
any
assessment
was
to
be
made
;
that
they
did
not
necessarily
tax
income
arising
outside
the
Province
and
consequently
were
valid
and
intra
vires
of
the
Act;
and
finally,
that
because
the
amount
of
the
profits
so
arising
in
Saskatchewan
had
been
found
as
a
fact
by
the
lower
tribunals,
that
amount
must
be
accepted
as
correct
by
the
Supreme
Court
which
had
no
jurisdiction
to
deal
with
the
facts
of
the
case.
That
judgment
impliedly
recognizes—certainly
does
not
deny—that
part
of
the
net
profits
of
the
company
might
arise
outside
Saskatchewan,
but
held
that
there
was
no
intention
to
tax
that
part,
and
in
fact
no
taxation
of
it.
Duff,
C.J.C.,
for
the
minority,
thought
that
if
the
Regulations
when
applied,
might
lead
to
taxation
of
income
arising
outside
Saskatchewan,
they
were
invalid.
He
sets
forth
this
view
with
conviction
and
authority.
He
then
goes
on
to
declare,
as
I
have
already
quoted,
that
the
profits
on
the
goods
sold
in
Saskatchewan
were
earned
by
all
the
processes
and
operations
which
took
place
in
Ontario
and
Saskatchewan
taken
together.
He
followed
the
Kirk
case
and
quoted
extensively
from
it.
It
is
to
be
noted
that
the
majority
Judges
did
not
controvert
the
view
expressed
by
the
Chief
Justice;
all
they
did
was
to
content
themselves
by
saying
that
on
the
facts
as
found
below,
the
tax
had
been
imposed
upon
that
part
of
the
income
which
arose
in
Saskatchewan,
and
on
nothing
more.
A
year
later,
however,
in
the
Firestone
case,
1942
S.C.R.
476;
[1942]
C.T.C.
254,
Kerwin
and
Hudson,
J
J.,
in
dissent
stated,
in
effect,
that
income
arises
not
from
manufacture,
but
from
sale
at
the
time
and
place
of
sale.
This
statement,
as
I
have
already
shown,
deals
with
facts—not
with
law,
and
as
such
must
be
confined
to
the
facts
in
the
Firestone
case.
The
remaining
questions
before
us,
can
be
disposed
of
without
difficulty.
The
chief
of
these
are:
who
should
make
the
assessment
;
how
should
it
be
made;
and
in
what
amount?
The
trial
Judge
referred
the
matter
back
to
the
Minister
for
those
purposes.
With
that
I
agree.
Section
47
of
the
Act
provides
that
where
‘‘any
return
or
information
supplied
by
.
.
.
a
taxpayer”
is
inadequate
or
unsatisfactory
to
him,
"‘the
Minister
may
determine
the
amount
of
the
tax
to
be
paid
by
any
person.
‘
‘
There
is
no
other
person
designated
under
the
Act
to
determine
the
amount.
But
the
trial
Judge
himself
made
a
finding
of
the
amount
of
the
tax,
and
in
the
formal
judgment
directs
that
the
Minister
adopt
it.
He
exceeded
his
powers
I
think
in
so
directing—invaded
the
field
which
the
Act
assigns
exclusively
to
the
Minister.
Moreover,
that
amount
was
determined
upon
a
formula
prepared
by
an
expert
accountant
and
submitted
at
the
trial.
The
formula
may
provide
a
way
of
determining
the
correct
amount,
or
it
may
not.
It
will
doubtless
be
a
valuable
guide
to
the
Minister,
but
he
is
not
bound
to
adopt
it
and
the
Court
should
not
attempt
to
force
it
upon
him.
The
judgment
below
should
therefore
be
varied
to
that
extent.
For
the
additional
guidance
of
the
Minister,
I
desire
to
say
that
the
‘‘manufacturer’s
profit,’’
so-called,
which
the
respondent
included
in
its
return,
is
unsound
in
principle
as
well
as
in
terminology.
The
profit
which
arose
from
the
company’s
business
in
Ontario,
and
which
ought
to
be
excluded
from
taxation
in
Manitoba,
was
a
profit
on
all
operations—manufacturing
and
others—in
Ontario;
but
the
amount
of
these
profits
so
to
be
excluded,
and
as
declared
in
the
return,
was
an
arbitrary,
stat-
tionary
amount
fixed
by
the
company
for
its
own
bookkeeping
convenience,
and
bore
no
relationship
to
costs
which
varied
from
year
to
year.
Those
‘‘manufacturing
profits
’
’
may
serve
as
some
guide,
but
they
are
not
necessarily
to
be
adopted
by
the
Minister.
In
order
to
clear
two
other
points,
I
merely
add
that
sales
which
have
been
dealt
with
here,
include
by
consent,
for
the
purposes
of
this
appeal,
all
sales
made
in
the
territory
lying
between
the
Great
Lakes
and
the
Rocky
Mountains;
also,
that
it
has
been
assumed
tacitly,
that
this
Court
has
jurisdiction
to
hear
an
appeal
from
a
King’s
Bench
Judge,
although
the
appeal
provisions
of
the
Act
do
not
so
declare.
And
finally,
that
costs,
to
or
against
the
Crown,
are
left
to
the
discretion
of
the
Court
by
section
60(4).
I
would
therefore,
vary
the
formal
judgment
below
by
withdrawing
from
it
the
amount
of
the
tax,
and
the
direction
to
the
Minister
to
adopt
that
amount.
I
would,
as
the
trial
Judge
does
in
his
reasons,
refer
the
matter
back
to
the
Minister
to
determine
the
amount
of
taxable
income
on
the
principle
of
apportionment
as
herein
declared.
In
other
matters
I
would
dismiss
the
appeal.
I
would
allow
the
respondent
its
costs
here
and
below.
Appeal
allowed.
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