O’Connor,
J.:—These
appeals
are
from
assessments
under
the
Income
War
Tax
Act,
R.S.C.,
chap.
97,
and
the
Excess
Profits
Tax
Act,
1940,
Statutes
of
Canada,
1940,
chap.
32
in
respect
of
the
taxation
years
1943
and
1944.
The
Minister
acting
under
para.
7
of
the
Wartime
Salaries
Order,
Order-in-Council
P.C.
1549,
dated
the
27th
day
of
February,
1942,
as
amended;
under
subsec.
(2)
of
sec.
6
of
the
Income
War
Tax
Act
and
under
subsec.
(b
)
of
sec.
8
of
the
Excess
Profits
Tax
Act,
1940,
in
computing
the
amount
of
the
profits
and
gains
to
be
assessed,
for
the
taxation
year
1943
disallowed
as
an
expense
of
the
appellant,
a
sum
in
the
aggregate
amount
of
$30,791.97,
and
for
the
taxation
year
1943,
a
sum
in
the
aggregate
amount
of
$26,868.34,
representing
in
each
case
a
portion
of
the
salaries
paid
by
the
appellant
to
certain
salaried
officials.
The
appellant
served
notices
of
appeal
on
the
Minister,
who
affirmed
the
assessments
and
then,
being
dissatisfied
with
the
Minister’s
decision,
brought
its
appeals
from
the
assessment
to
this
Court.
The
appeals
were
heard,
together,
in
camera.
Resolutions
were
passed
by
the
shareholders
of
the
company
in
June
1941
fixing
the
salaries
of
these
officials
at
various
amounts
free
of
income
tax.
The
respondent
disallowed
the
amount
paid
in
1943
and
1944
that
was
in
excess
of
the
salary
and
income
tax
for
the
base
year
defined
by
the
Order
as
the
year
commencing
the
7th
November,
1940,
and
ending
the
6th
day
of
November,
1941.
The
respondent
contends
that
the
sums
disallowed
were
in
excess
of
the
amount
permitted
by
sec.
2
of
the
said
Wartime
Salaries
Order.
The
respondent
further
contends
that
none
of
the
proceedings
at
the
meeting
of
shareholders
conform
to
the
constitution
of
the
company
and
the
relevant
Companies
Act,
and
that
the
resolutions
were
not
duly
and
validly
passed.
Article
103
of
the
Articles
of
Association
of
the
company
provides
that
directors
may
appoint
one
or
more
of
their
body
to
be
managing
director
and
Article
105
provides
that
his
remuneration
shall
be
fixed
by
the
directors.
Article
123(d)
provides
that
the
directors
shall
have
the
power
to
fix
the
salaries
of
the
officers
and
servants
of
the
company.
"Special
resolution”
is
defined
by
sec.
2
of
the
Articles
as
a
resolution
passed
by
a
majority
of
not
less
than
three-fourths
of
the
members
of
the
company
.
.'
.
and
confirmed
at
a
subsequent
meeting
of
the
shareholders
held
not
less
than
fourteen
days
and
not
more
than
one
month
from
the
date
of
the
first
meeting.
See.
92
of
the
Articles
provides
that
no
director
shall,
as
a
director,
vote
in
respect
of
any
contract
or
arrangement
entered
into
by
or
on
behalf
of
the
company
in
which
he
is
in
any
way
interested.
There
were
six
directors
on
the
board.
Four
of
these
were
elected
by
the
common
shareholders
and
were
all
engaged
in
the
active
management
of
the
company.
The
remaining
two
were
nominated
by
the
1st
preferred
shareholders
and
elected
by
the
common
shareholders.
The
1st
preferred
shareholders
had
no
right
to
vote
in
general
meeting
unless
there
had
been
a
default
in
dividends
continuing
for
three
years.
There
had
been
no
such
default
in
dividends.
These
two
directors
were
not
engaged
in
the
active
management
of
the
company.
Of
the
five
officials
of
the
company
whose
salaries
were
increased
by
the
resolutions
of
June
2nd,
1941,
four
were
directors
of
the
company
elected
by
the
common
shareholders
and
in
charge
of
the
management
of
the
company.
Notice
of
the
annual
meeting
to
be
held
on
the
2nd
J
une,
1941
was
sent
by
the
Secretary
to
all
ordinary
shareholders
of
the
company
who
were
the
only
shareholders
entitled
to
vote.
Under
the
Articles
of
the
company
set
out
above,
the
directors
had
the
power
to
fix
the
salaries
in
question.
These
four
directors
were
apparently
unwilling
to
have
the
directors
do
so
and
the
Secretary
of
the
company
was
instructed
to
send
out
a
second
notice
to
the
ordinary
shareholders
advising
them
that
at
the
annual
meeting
the
resolutions
making
these
salaries
free
from
income
tax
would
be
submitted.
The
Secretary
sent
out
notices
stating
that
at
the
annual
meeting
.
.
.
"‘the
following
special
business
will
be
submitted
in
the
form
of
Special
resolutions
.
.
.
’’,
and
then
followed
the
resolutions
in
question.
I
A
total
of
437
ordinary
shares
had
been
issued
of
which
these
five
officials
held
only
178
shares.
At
the
annual
meeting
all
the
ordinary
shareholders
were
either
present
in
person
or
by
proxy
with
the
exception
of
one
company
holding
eight
Shares
and
that
company
was
represented
by
its
Vice-President
although
no
formal
proxy
was
filed
on
its
behalf.
The
following
resolutions
were
then
submitted
to
the
meeting
and
carried
unanimously
:
‘Mr.
C.
D.
Jacox
be
and
is
hereby
appointed
Managing
Director
of
the
Company
at
the
salary
of
per
year,
as
from
January
1st
1941,
free
from
income
tax.’’
"‘The
salaries
of
the
following
officials
of
the
Company,
viz.,
Mr.
W.
A.
McAulay,
Mr.
F.
D.
Suteliffe,
Mr.
W.
B.
Shaw
and
Mr.
R.
W.
Roscoe,
as
at
present
in
effect
be
free
from
income
tax
and
subject
to
adjustment
from
time
to
time
at
the
dis-
cretion
of
the
Managing
Director,
effective
as
from
January
1st,
1941."
The
resolutions
were
not
confirmed
at
any
subsequent
meeting
of
the
shareholders.
On
the
passing
of
the
resolutions,
Mr.
C.
D.
Jacox
assumed
the
duties
of
managing
director
and
the
other
officials
continued
in
their
present
positions
and
the
company
paid
these
officials
in
accordance
with
the
resolutions,
making
the
necessary
entries
in
books
of
the
company
and
filed
income
tax
returns
exhibiting
such
payments
as
expenses
deducted
from
income.
A
meeting
of
the
directors
was
held
on
the
2nd
of
March,
1942,
at
which
all
the
directors
were
present.
The
auditors’
statement
for
the
year
ending
December
3rd,
1941
was
read
to
the
meeting
and,
on
motion
of
the
two
directors
nominated
by
the
First
Preferred
shareholders,
was
duly
passed.
There
was
included
in
the
statement
(Exhibit
9)
the
item
showing
the
total
payments
for
wages
and
salaries
of
$69,000
which
included
the
income
tax
payments
made
pursuant
to
the
resolution.
Mr.
Evans,
one
of
the
two
directors
said
that
he
and
Dr.
Allin
(the
other
director)
had
previously
been
given
full
information
and
details
as
to
what
was
being
done
in
the
way
of
salaries
and
were
satisfied.
That
is
borne
out
by
the
wording
of
the
motion
approving
of
the
auditors’
report
which
reads:
‘After
some
discussion,
on
motion
of
Mr.
Evans
seconded
by
Dr.
Allin,
the
auditors’
report
and
the
statement
of
accounts
were
accepted,
both
Mr.
Evans
and
Dr.
Allin
expressed
their
gratification
with
the
excellent
results
secured
during
the
year
1941.’’
No
salary
rates
in
respect
to
these
officials
other
than
or
further
to
those
fixed
by
these
resolutions
of
June
2nd,
1941
were
fixed
or
established
by
the
appellant
and
these
rates
were
therefore
the
most
recent
salary
rates
established
for
and
payable
to
the
officials
prior
to
the
7th
November,
1941.
The
Court
was
informed
by
counsel
that
by
an
agreement
between
the
parties
these
appeals
were
to
be
heard
on
the
basis
that
payment
of
the
salaries
pursuant
to
the
resolution
had
been
made
by
the
appellant
to
these
officials
during
the
period
in
question.
The
increase
of
the
rate
at
which
the
income
tax
was
assessed
in
1943
and
1944
had
the
effect
of
increasing
the
amount
of
the
salaries
paid
in
accordance
with
the
resolution
over
the
salaries
paid
in
the
base
year.
The
first
question
is:
Were
the
resolutions
passed
at
the
general
meeting
of
the
company,
valid?
The
argument
against
the
validity
of
these
resolutions
is
that
the
Articles
of
Association
of
the
company
gave
the
board
of
directors
the
power
of
appointing
one
or
more
of
their
body
to
be
a
managing
director
or
managing
directors
of
the
company,
and
to
fix
his
or
their
remunerations
and
the
power
to
fix
the
salaries
or
emoluments
of
the
other
officials
and
that
the
company
has
accordingly
surrendered
these
powers
and
that
the
directors
alsone
can
exercise
them.
It
is
not
necessary,
however,
in
this
case
to
determine
whether
it
is
competent
for
the
company
to
override
the
powers
conferred
by
the
Articles
on
the
directors
where
the
board
is
ready
and
willing
and
able
to
act.
Because
this
is
not
the
position
in
this
case.
These
resolutions
had
the
effect
of
increasing
the
salaries
of
four
of
the
six
directors
of
the
company.
Each
of
the
four
directors
was
prohibited
from
voting
by
sec.
92
of
the
Articles
in
respect
of
any
contract
or
arrangement
entered
into
by
or
on
behalf
of
the
company
in
which
he
shall
be
in
any
way
interested.
The
second
resolution
constituted
a
contract
with
three
of
the
directors
which
was
within
the
prohibition
of
Article
92.
If
there
had
been
no
remuneration
attached
to
the
office
of
managing
director,
the
appointment
of
Mr.
Jacox
would
be
merely
a
delegation
of
their
powers
by
the
directors
to
him
and
would
not
constitute
a
contract
between
him
and
the
company
within
Article
92.
Imperial
Mercantile
Credit
Association
v.
Coleman
(1871)
6
Ch.
558
at
567.
But
there
was
remuneration
attached
and,
therefore,
a
contract
between
the
company
and
Mr.
Jacox
within
Article
92.
Peterson
J.,
in
Foster
v.
Foster
(1916)
1
Ch.
D.
532
at
547,
said:
"In
the
New
British
Iron
Co.
case
(1898)
1
Ch.
324
the
articles
required
the
directors
to
possess
a
share
qualification,
and
provided
that
the
remuneration
of
the
board
should
be
an
annual
sum
of
£1000
to
be
paid
out
of
the
funds
of
the
Company,
and
it
was
held
that,
although
those
provisions
in
the
articles
were
only
part
of
the
contract
between
the
shareholders
inter
se,
the
provisions
were,
on
the
directors
being
employed
and
accepting
office
on
the
footing
of
them,
embodied
in
the
contract
between
the
Company
and
the
directors.
.
.
.
“.
.
.
In
my
judgment,
if
a
resolution
is
passed
at
a
directors’
meeting
that
one
of
the
directors
be
appointed
a
managing
director
at
a
remuneration
and
that
director
is
present
and
accepts
the
appointment,
there
is
a
contract
between
the
Company
and
the
director,
and
the
director
is
not
under
article
92
able
to
vote
in
support
of
such
a
contract.’’
In
my
opinion,
making
the
salaries
of
these
four
free
of
income
tax
formed
part
of
one
transaction
in
which
all
four
were
equally
interested
and
that
all
four
would
be.
prohibited
from
voting.
When
two
or
more
directors
are
interested,
it
will
not
avail
to
split
up
the
resolution
and
for
each
director
to
abstain
from
voting
on
the
part
in
which
he
is
interested.
North
Eastern
Insurance
Company
(1919)
1
Ch.
198.
As
stated
by
Lord
Hatherley
in
Imperial
Mercantile
Credit
Association
v.
Coleman
(supra),
these
resolutions
could
not
be
split
so
that
each
could
abstain
from
voting
on
the
part
in
which
he
was
interested
because
the
company
is
entitled
to
have
the
independent
judgment
of
the
whole
board
on
every
matter
and
an
interested
director
cannot
give
an
independent
judgment.
While
the
directors
had
the
power
to
increase
their
salaries,
they
were,
in
my
opinion,
by
reason
of
Article
92,
unable
to
exercise
it.
But
even
if
they
were
able
to
exercise
this
power,
they
were
unwilling
to
do
so
and
quite
properly
brought
the
matter
before
the
shareholders.
While
these
directors
were
prohibited
from
voting
as
directors
on
such
resolutions
by
Article
92,
such
a
prohibition,
however,
would
not
prevent
them
from
voting
as
shareholders
at
general
meeting
of
the
company
upon
such
resolutions.
North
West
Transportation
Co.
v.
Beatty
(1887)
12
A.C.
589
and
Burland
v.
Earle
(1902)
A.C.
94.
In
Foster
v.
Foster
(supra)
Petersen,
J.,
at
551
said:
‘‘From
a
business
point
of
view
it
seems
to
me
that
there
are
only
two
persons
who
are
possible
managing
directors,
and
the
board
has
been
reduced
to
the
position
that
it
is
unable,
owing
to
internal
friction
and
faction,
to
appoint
anybody
as
a
managing
director.
In
those
circumstances
I
should
apply
the
decision
of
Warrington,
J.,
in
Barron
v.
Potter
(1914)
1
Ch.
895,
903.
The
learned
Judge
says:
‘If
directors
having
certain
powers
are
unable
or
unwilling
to
exercise
them—are
in
fact
a
non-existent
body
for
that
purpose—
there
must
be
some
power
in
the
Company
to
do
that
itself
that
which
under
other
circumstances
would
be
otherwise
done.
The
directors
in
the
present
case
being
unwilling’—in
this
case
unable—‘to
appoint
additional
directors
under
the
power
conferred
on
them
by
the
articles,
in
my
opinion,
the
Company
in
general
meeting
has
power
to
make
the
appointment.’
”’
Applying
that
principle
to
this
case
I
hold
that,
while
the
directors
had
the
power
under
the
Articles
of
Association
to
fix
their
own
salaries
as
officials,
they
were
unable,
for
the
reasons
I
have
already
given,
or
were
unwilling,
to
exercise
such
power,
the
company
in
general
meeting
had
the
power
to
do
so.
In
addition,
the
four
directors
must
have
discussed
and
agreed
to
making
these
salaries
free
of
income
tax.
By
placing
the
resolutions
before
the
general
meeting,
the
directors
in
effect,
recommended
that
this
be
done.
The
ordinary
shareholders
approved
the
resolutions
unanimously.
The
officials
acted
on
the
faith
of
the
resolutions.
So
did
the
company
as
shown
by
the
entries
in
the
books
of
the
company,
and
in
the
income
tax
return
filed.
In
these
circumstances
a
resolution
of
the
directors
fixing
these
salaries
free
of
income
tax
will
be
assumed
to
have
been
duly
passed.
See
Wilson
v.
Woollatt
(1928)
62
O.L.R.
620,
in
which
Masten,
J.A.
at
627,
reviews
the
authorities
on
this
question.
The
resolutions
in
question
were
not
required
by
the
Articles
to
be
special
resolutions
so
that
it
was
not
necessary
to
have
them
confirmed
by
a
subsequent
meeting
of
the
shareholders.
For
the
reasons
I
have
given,
I
hold
that
these
resolutions
passed
at
the
general
meeting
were
valid.
The
respondent
contends
that
the
result
of
these
resolutions
was
to
materially
increase
these
salaries
during
the
years
that
followed,
and
that
such
increases
were
directly
opposed
to
the
spirit
of
the
Wartime
Salaries
Order
which
was
made
to
prevent
inflation.
The
employees
undoubtedly
received
a
much
higher
income
as
the
result,
and
there
was,
therefore,
a
corresponding
increase
in
the
cost
to
the
employer.
The
resolutions,
however,
were
passed
eight
months
before
the
Wartime
Salaries
Order
was
made
and
the
practice
of
making
salaries
income
tax
free
had
been
inaugurated
by
the
appellant
as
early
as
1920.
The
company
was
not,
therefore,
attempting
to
evade
the
provisions
of
the
order.
It
quite
properly
desired
to
carry
out
the
obligation
it
had
undertaken.
The
question
is
simply,
can
the
resolutions
be
lawfully
implemented
within
the
provisions
of
the
Salaries
Order,
the
relevant
parts
of
which
are
as
follows:
"2.
Unless
otherwise
permitted
by
paragraphs
3
or
4
hereof,
no
employer
shall,
on
and
after
November
7th,
1941
:
(a)
increase
the
rate
of
salary
paid
to
a
salaried
official
above
the
most
recent
salary
rate
established
and
payable
prior
to
November
7th,
1941,
or
if
no
rate
or
salary
for
a
particular
salaried
official
were
established
and
payable
prior
to
November
7th
because
the
said
salaried
official
was
not
employed
by
the
employer
prior
to
the
said
date,
increase
the
rate
of
salary
above
the
rate
of
salary
first
payable
to
the
said
salaried
official.
(b)
.
.
.
(@)
...
(d)
pay
as
bonus
(which,
for
the
purpose
of
this
subparagraph,
shall
include
gratuities
and
shares
of
profits
but
shall
not
include
cost
of
living
bonus)
a
larger
total
amount
to
any
one
salaried
official
during
any
year
following
November
6th,
1941,
than
the
total
amount
paid
to
the
said
salaried
official
as
a
bonus
in
the
base
year,
provided
that
:
(i)
where
the
salaried
official
has
a
contractual
right
evidenced
in
writing
which
existed
at
November
6th,
1941,
to
receive
such
bonus,
defined
as
a
fixed
percentage
of
or
in
fixed
ratio
to
his
salary,
the
profits
of
the
business,
or
the
amount
of
sales,
output
or
turnover
of
the
business,
the
employer
may
continue
to
pay
the
said
bonus
at
the
same
fixed
percentage
or
ratio
as
that
contracted
for
previous
to
November
7th,
1941.1’
The
decision
of
the
Minister
shows
that
the
respondent
treated
the
amount
paid
for
income
tax
as
a
bonus,
and
under
section
2(d)
disallowed
the
amount
in
excess
of
the
salary
and
income
tax
for
the
base
year
defined
by
the
Order,
as
the
year
commencing
the
7th
day
of
November,
1940,
and
ending
the
6th
day
of
November,
1941.
The
statement
of
defence
alleges
that
the
amounts
disallowed
represent
increases
in
the
rates
of
salary
paid
to
those
officials
in
1943
and
1944
respectively,
above
the
most
recent
rates
established
and
payable
to
them
prior
to
the
7th
November,
1941,
as
set
forth
in
sec.
2(a)
of
the
Order.
The
next
question
is
whether
the
payment
of
the
income
tax
is
a
bonus
within
sec.
2(d)
of
the
Order.
Bonus
is
not
defined
by
the
Order,
but
the
meaning
given
by
Webster’s
International
Dictionary
is,
"‘Something
given
in
addition
to
what
is
ordinarily
received
by,
or
strictly
due
to,
the
recipient’’.
The
Oxford
Concise
Dictionary
defines
bonus
as,
‘‘Something
to
the
good,
into
the
bargain
(and
as
an
example)
.
.
.
gratuity
to
workmen
beyond
their
wages’’.
In
Shelford
v.
Mosey
(1917)
1
K.B.
154
C.A.,
Lord
Reading
describes
the
‘bonus”
in
that
case
to
be
‘‘nothing
else
but
a
euphemism
for
‘addition
to
wages’’’.
That,
in
my
view,
is
equally
true
of
“bonus”
in
sec.
2(d).
A
bonus
may
be
a
mere
gift
or
gratuity
as
a
gesture
of
goodwill,
and
not
enforceable.
Or
it
may
be
something
which
an
employee
is
entitled
to
on
the
happening
of
a
condition
precedent
and
is
enforceable
when
the
condition
is
fulfilled.
But
in
both
eases
it
is
something
in
addition
to
or
in
excess
of
that
which
is
ordinarily
received.
Here,
on
the
contrary,
“free
of
income
tax”
is
not
something
in
addition
to
or
in
excess
of
that
which
is
to
be
received,
but
is
part
and
parcel
of
the
salary.
In
my
opinion
the
payment
of
the
income
tax
is
not
a
bonus
within
see.
2(d)
of
the
Order.
While
the
result
of
the
resolutions
was
to
materially
increase
the
salaries
in
1943
and
1944,
the
question
is
whether
the
company
increased
the
rate
of
salary
above
the
most
recent
salary
rate
established
and
payable
prior
to
November
7th,
1941
prohibited
by
see.
2(a).
Sec.
2(d)
prohibits
the
payment
‘‘as
bonus’’
of
a
larger
total
amount
‘‘to
a
salaried
official’’
than
the
‘‘total
amount”
paid
as
bonus
in
the
base
year.
See.
2(a)
does
not
deal
with
“total
amounts’’
at
all.
It
prohibits
an
increase
in
the
‘‘rate
of
salary’’
paid
to
a
salaried
official
above
the
most
recent
salary
rate
established
and
payable
prior
to
November
7th,
1941.
The
words
“established
and
payable’’
refer
to
the
‘‘salary
rate’’
not
to
the
amount
of
salary.
Under
sec.
2(a)
it
is
the
employer
who
is
prohibited
from
increasing
the
rate.
In
this
case
the
employer
has
not
increased
the
rate,
the
increase
in
the
amount
results
from
an
increase
in
the
income
tax
rate.
Rate
is
not
defined
by
the
Order
and
therefore
must
be
given
its
natural
and
ordinary
meaning.
The
meaning
given
by
the
Oxford
Concise
Dictionary
is:
"Statement
of
numerical
proportion
prevailing
or
to
prevail
between
two
sets
of
things
either
or
both
of
which
may
be
unspecified,
amount
&c.,
mentioned
in
one
case
for
application
to
all
similar
ones,
standard
or
way
of
reckoning,
(measure
of)
value,
tariff
charge,
cost,
relative
speed,
(going
at
the
r.
of
six
miles
an
hour;)
can
have
them
at
the
r.
of
1/-
a
thousand;
the
r.
was
19
per
mille;
the
r.
of
interest,
wages,
&e.,
is
to
be
regulated;
the
high
rr.
charged
by
the
railways;
2
2
The
"rate
of
salary
established
and
payable”
for
each
official
by
these
regulations
was
the
number
of
dollars
plus
the
tax
payable
by
each
official
on
those
dollars.
This
was
the
"standard
or
way
of
reckoning’’
by
which
his
salary
could
be
ascertained
each
year.
In
my
view
there
was
no
increase
in
the
‘‘rates
of
salary”
paid
to
those
officials
in
1943
and
1944
above
the
most
recent
rates
established
and
payable
to
them
prior
to
the
7th
November,
1941.
Counsel
for
the
respondent
also.
relies
on
sec.
9
of
the
Order
which
reads:
“No
agreement
providing
for
an
increase
in
the
rate
of
salary
above
the
rate
payable
at
November
6,
1941,
shall
be
enforceable
in
respect
of
such
increase
except
and
to
the
extent
that
such
increase
is
within
the
amount
that
may
be
permitted
by
paragraphs
3
or
4
hereof,
and
no
action
shall
lie
against
any
person
for
breach
of
contract
for
complying
with
the
provisions
of
this
Order
or
for
refusing
to
pay
any
salary
in
excess
of
the
amount
permitted
by
this
Order.”’
The
resolutions,
however,
do
not
provide
for
any
subsequent
increase
in
rate
of
salary.
They
establish
a
rate
of
salary
prior
to
the
6th
November,
1941,
which
was
applicable
both
prior
to
and
subsequent
to
that
date.
In
my
opinion
the
amounts
in
question
should
not
have
been
disallowed
under
sec.
7
because
they
were
not
in
violation
of
sec.
2
of
the
Order.
The
appeal
will
be
allowed
and
the
assessments
will
be
referred
back
to
the
Minister
for
an
adjustment
of
the
figures
consequential
on
the
allowance
of
the
appeal.
The
appellant
is
entitled
to
the
costs
of
the
appeal.
Judgment
accordingly.
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